Members of the board of directors of Control One have received the following operating income data for the year ended March 31, 2012:

Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $82,000 and decrease fixed marketing and administrative expenses by $15,000.
Requirements
1. Prepare an incremental analysis to show whether Control One should drop the industrial systems product line.
2. Prepare contribution margin income statements to show Control One€™s total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives€™ income numbers to your answer to Requirement 1.
3. What have you learned from this comparison in Requirement2?

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CONTROL ONE Income Statement For the Year Ended March 31, 2012 Product Line Industrial Houschold Systems Systems Total $ 330,000 S 370,000 $ 70,000 Sales revenue Cost of goods sold: Variable 33,000 47,000 80,000 Fixed 240,000 69,000 309,000 $ 273,000 S 116,000 S 389,000 $ 57,000 S 254,000 S 311,000 Total cost of goods sold Gross profit Marketing and administrative expenses: Variable 64,000 73,000 137,000 Fixed 39,000 27,000 66,000 Total marketing and administrative exp. $ $ 100,000 S 203,000 103,000 $ (46,000) $ 154,000 S 108,000 Operating income (loss)