Question

Variable Costing Income Statement and Effect on Income of Change in Operations Kombrelling manufactures three sires of utility tableswall (S), medium (M), and large (L). The income statement has consistently indicated and loss for the M , and management considering three proposals (1) continue Se M. (2) discontinue Sise Mand reduce total output accordingly.or () discontinue Se Mand conduct an advertising campaign to expand the sales of S S so that the entire plant capacity can continue to be used If Proposal 2 is selected and Se Mis discontinued and production curtailed, the annual feed production costs and find operating expenses could be reduced by $142.500 and $28.350 respectively. If Proposal selected, tisanticipated that an additional annual expenditure of $85,050 for the salary of an assistant brand manager (dewified as a fred operating expense) would yield an additional 130% in Se S sales volume. It is also assumed that the increased production of Sure would utilize the plant facilities released by the discontinuance of Swe 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, 2018 is as follows: Total $3.022.500 $990.000 $1.087.500 $945.000 $718.500 5567,000 350.000 $1,624,000 729.000 $538,500 241.000 5779,500 210.500 $1.006.500 $817,000 $2.603.000 1.000 $120.000 5419.500 Sales Cost of goods sold Variable costs Foed costs Total cost of goods sold Gross profit Operating expenses Variable expenses Fodenses Total operating expenses income from operations $100.750 5311.00 $116.100 32.125 $150.225 599 300 25 26 2751

Answer 1

Answer is given below

Total Sales Variable cost of goods sold Manufacturing margin Variable operating expense Contribution margin Kimbrell Inc. Variable Costing Income Statement For the year ended December 31, 2048 Size S Size M $990,000 $1,087,500 $538,500 $718,500 $451,500 $369,000 $118,100 $108,750 $333,400 $260,250 Size L $945,000 $567,000 $378,000 $85,050 $292,950 $3,022,500 $1,824,000 $1,198,500 $311,900 $886,600 Fixed cost Manufacturing cost Operating expenses Total Fixed cost income from Operations $779,000 $88,900 $867,900 $18,700 Income from Operations would be reduced by $89,400 if Proposal 1 is accepted working notes: Sales Variable cost of goods sold Manufacturing margin Variable operating expense Contribution margin Size S $990,000 $538,500 $451,500 $118,100 $333,400 Sizel $945,000 $567,000 $378,000 $85,050 $292,950 Total $1,935,000 $1,105,500 $829,500 $203,150 $626,350 Fixed cost Manufacturing cost Operating expenses Total Fixed cost Net operating income $636,500 $142,500 less $60,550 $28,350 less $697,050 -$70,700 Kimbrell Inc. Variable Costing Income Statement For the year ended December 31, 2048 Size S Sales $2,277,000 Variable cost of goods sold $1,238,550 Manufacturing margin $1,038,450 Variable operating expense $271,630 Contribution margin $766,820 Size L $945,000 $567,000 $378,000 $85,050 $292,950 Total $3,222,000 $1,805,550 $1,416,450 $356,680 $1,059,770 Fixed cost Manufacturing cost Operating expenses Total Fixed cost Net operating income $636,500 $145,600 $782,100 $277,670 4 Annual income will increase by $258,970 if Proposal 3 is accepted |