Valdespin Company manufactures three sizes of camping tentssmall (S), medium (M), and large (L). The income statement has consistently indicated a net loss for the M size, and management is considering three proposals: (1) continue Size M, (2) discontinue Size M and reduce total output accordingly, or (3) discontinue Size M and conduct an advertising campaign to expand the sales of Size S so that the entire plant capacity can continue to be used.

If Proposal 2 is selected and Size M is discontinued and production curtailed, the annual fixed production costs and fixed operating expenses could be reduced by $46,080 and $32,240 respectively. If Proposal 3 is selected, it is anticipated that an additional annual expenditure of $34,560 for the rental of additional warehouse space would yield an additional 130% in Size S sales volume. It is also assumed that the increased production of Size S would utilize the plant facilities released by the discontinuance of Size M.

The sales and costs have been relatively stable over the past few years, and they are expected to remain so for the foreseeable future. The income statement for the past year ended June 30, 2014, is as follows:

3. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. The expenditure of $34,560 for the rental of additional warehouse space can be added to the fixed operating expenses. Enter all amounts as positive numbers.

Size Total ales ....$668,000 $737,300 956,160 $2,361,460 Cost of goods sold Variable costs Fixed costs. Total cost of goods sold $300,000 $357,120$437,760 $1,094,880 74880 138250 172,800 385,930 5293,120 $241,930 $345600 5 880,650 132,480 $155,500 195,840 S 483,820 $345,600 ross profit ess operating expenses: Variable expenses Fixed expenses Total operating expenses .. 92,160 103,680 115,200 311,040 .. ncome from operations 68480 $ (17,250) 34,560 85,790 Valdespin Company Contribution Margin-Proposal 3 For the Year Ended June 30, 2014 Size S Size L Total Sales 702560 956160 1824560 Variable cost of goods sold Manufacturing margin Variable operating expenses Contribution margin Fixed costs: 390000 437760 827760 478400 518400 996800 172224 195840 368064 306176 322560 628736 Manufacturing costs 424090 Operating expenses 345600 Total fixed costs Income from operations Size Total ales ....$668,000 $737,300 956,160 $2,361,460 Cost of goods sold Variable costs Fixed costs. Total cost of goods sold $300,000 $357,120$437,760 $1,094,880 74880 138250 172,800 385,930 5293,120 $241,930 $345600 5 880,650 132,480 $155,500 195,840 S 483,820 $345,600 ross profit ess operating expenses: Variable expenses Fixed expenses Total operating expenses .. 92,160 103,680 115,200 311,040 .. ncome from operations 68480 $ (17,250) 34,560 85,790 Valdespin Company Contribution Margin-Proposal 3 For the Year Ended June 30, 2014 Size S Size L Total Sales 702560 956160 1824560 Variable cost of goods sold Manufacturing margin Variable operating expenses Contribution margin Fixed costs: 390000 437760 827760 478400 518400 996800 172224 195840 368064 306176 322560 628736 Manufacturing costs 424090 Operating expenses 345600 Total fixed costs Income from operations