Members of the board of directors of Control One have received the following operating income data for

Members of the board of directors of Control One have received the following ­operating income data for the year ended March 31, 2014:

Members of the board are surprised that the industrial systems product line is los-ing 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 selling and adminis-trative expenses by $ 15,000.

Requirements
1. Prepare a differential 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?

Transcribed Image Text:

CONTROL ONE Income Statement For the Month Ended March 31, 2014 Product Line Industrial Household Systems Systems Total Sales Revenue 330,000 370,000 700,000 Cost of Goods Sold: Variable 33,000 240,000 273,000 57,000 47,000 80,000 ixed Total Cost of Goods Sold Gross Profit Selling and Administrative Expenses: 116,000 389,000 254,000 311,000 Variable 73,000 27,000 100,000 (46,000) 154,000 $108,000 64,000 39,000 103,000 137,000 66,000 203,000 Fixed Total Seling and Administrative Expenses Operating Income (Loss)