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PR$21-5$B Variable costing income statement and effect on ineome of change in operations

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Kimbrell Inc, manufactures three sizes of utility tables$-$small $(S),$ medium $($M$),$ and large $($L$).$ The thome statement has consistently indicated a net loss for the M size, and manigement is considering three proposals: $(1)$ continue Size M$,(2)$ discontinue Size M and reduce total output acoordingly, or $(3)$ discontinue Size $M$ and conduct an advertising campaign to expand the sales of Size $ 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 cosis 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 amual expendiure of $$85,050$ for the silary 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 imereased production of Size $ would utilize the plant faclities released by the discontinuance of Size $M.$

The sales and costs have been relatively stable ower the past few years, and they are expected to remain so for the forsecable future. The income statement for the past year ended December $31,20Y8,$ is ats follows:

$\backslash$table$[[,$Size,Total$],[,5,$M$,$l$],[.,$s s$\mathrm{.}10000,51,087,500,5945,000,$$$3,022500$

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