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 an- nual 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 January 31, 2015, is as follows: Size S M L Total Sales $ 990,000 $ 1,087 500 $945,000 $3,022,500 Cost of goods sold: Variable costs . ... .. . .. $ 538 500 $ 718 500 $567,000 $1,824,000 Fixed costs 241,000 288,000 250,000 779,000 Total cost of goods sold $779 500 $1,006 500 $817,000 $2 603,000 Gross profit $ 210,500 81,000 $128,000 $ 419,500 Less operating expenses: Variable expenses . ............ $ 118,100 $ 108 750 $ 85,050 $ 311,900 Fixed expenses 32 125 42 525 14250 88,900 Total operating expenses ...... $150,225 151,275 $ 99,300 $ 400,800 Income from operations . $ 60 275 (70 275) $ 28,700 5 18,700