Variable Costing Income Statement and Effect on Income of Change in Operations Kimbrell Inc. manufactures three sizes of utility tables-small (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 $142,500 and $28,350, respectively. If Proposal 3 is selected it is anticipated that an additional annual expenditure of $85,050 for the salary of an assistant brand manager classified as a fixed operating expense 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 December 31, 20Y8, is as follows Size Total Sales $990,000 $1,087,500 $945,000 $3,022,500 Cost of goods sold Variable costs Fixed costs Total cost of goods sold $538,500 $718,500 $567,000 $1,824,000 288,000 250,000 $779,500 $1,006,500 $817,000 $2,603,000 $210,500 $81,000 $128,000 $419,500 779,000 24 1,000 Gross profit Operating expenses: Variable expenses Fixed expenses Total operating expenses $118,100 $108,750 $85,050 $311,900 88,900 $150,225 $151,275 $9,300 $400,800 $60,275 $(70,275) $28,700 $18,700 32,125 42,525 14,250 Income from operations Required 1. Prepare an income statement for the past year in the variable costing format. Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin, as reported in the "Total" column, to determine income from operations. Enter all amounts as positive numbers. Kimbrell Inc Variable Costing Income Statement For the Year Ended December 31, 20Y8 Size L Total Size S Size M 22,0v Sales 718,500567.00 Variable cost of goods sold 538,500 Manufacturing margin 451 500369,0378.0019500 18100 10,750 85,050311.900 378,000 108,750 118.100 Contribution margin 333400200,250292950886,000 Fixed costs: Manufacturing costs Operating expenses Total fixed costs Income from operations 2. Based on the income statement prepared in (1) and the other data presented above, determine the amount by which total annual income from operations would be reduced below its present level if Proposal 2 is accepted 3. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin as reported in the Total" column. For purposes of this problem, the additional expenditure of $85,050 for the assistant brand manager's salary can be added to the fixed operating expenses. Enter all amounts as positive numbers. 3. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin as reported in the "Total" column. For purposes of this problem, the additional expenditure of $85,050 for the assistant brand manager's salary can be added to the fixed operating expenses. Enter all amounts as positive numbers Kimbrell Inc. Variable Costing Income Statement For the Year Ended December 31, 20Y8 Size S Size L Total Sales Variable cost of goods sold Manufacturing margin Variable operating expenses Contribution margin Fixed costs: Manufacturing costs Operating expenses Total fixed costs Income from operations Feedback 4. By how much would total annual income increase above its present level if Proposal 3 is accepted? Feedback Variable Costing Income Statement and Effect on Income of Change in Operations Kimbrell Inc. manufactures three sizes of utility tables-small (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 $142,500 and $28,350, respectively. If Proposal 3 is selected it is anticipated that an additional annual expenditure of $85,050 for the salary of an assistant brand manager classified as a fixed operating expense 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 December 31, 20Y8, is as follows Size Total Sales $990,000 $1,087,500 $945,000 $3,022,500 Cost of goods sold Variable costs Fixed costs Total cost of goods sold $538,500 $718,500 $567,000 $1,824,000 288,000 250,000 $779,500 $1,006,500 $817,000 $2,603,000 $210,500 $81,000 $128,000 $419,500 779,000 24 1,000 Gross profit Operating expenses: Variable expenses Fixed expenses Total operating expenses $118,100 $108,750 $85,050 $311,900 88,900 $150,225 $151,275 $9,300 $400,800 $60,275 $(70,275) $28,700 $18,700 32,125 42,525 14,250 Income from operations Required 1. Prepare an income statement for the past year in the variable costing format. Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin, as reported in the "Total" column, to determine income from operations. Enter all amounts as positive numbers. Kimbrell Inc Variable Costing Income Statement For the Year Ended December 31, 20Y8 Size L Total Size S Size M 22,0v Sales 718,500567.00 Variable cost of goods sold 538,500 Manufacturing margin 451 500369,0378.0019500 18100 10,750 85,050311.900 378,000 108,750 118.100 Contribution margin 333400200,250292950886,000 Fixed costs: Manufacturing costs Operating expenses Total fixed costs Income from operations 2. Based on the income statement prepared in (1) and the other data presented above, determine the amount by which total annual income from operations would be reduced below its present level if Proposal 2 is accepted 3. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin as reported in the Total" column. For purposes of this problem, the additional expenditure of $85,050 for the assistant brand manager's salary can be added to the fixed operating expenses. Enter all amounts as positive numbers. 3. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin as reported in the "Total" column. For purposes of this problem, the additional expenditure of $85,050 for the assistant brand manager's salary can be added to the fixed operating expenses. Enter all amounts as positive numbers Kimbrell Inc. Variable Costing Income Statement For the Year Ended December 31, 20Y8 Size S Size L Total Sales Variable cost of goods sold Manufacturing margin Variable operating expenses Contribution margin Fixed costs: Manufacturing costs Operating expenses Total fixed costs Income from operations Feedback 4. By how much would total annual income increase above its present level if Proposal 3 is accepted? Feedback