Members of the board of directors of Safe Zone have received the following operating income data for the year ended May 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 $84,000 and decrease fixed marketing and administrative expenses by $14,000.
Requirements
1. Prepare an incremental analysis to show whether Safe Zone should drop the industrial systems product line.
2. Prepare contribution margin income statements to show Safe Zone€™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 the comparison in Requirement2?

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SAFE ZONE Income Statement For the Year Ended May 31, 2012 Product Line Industrial Houschold Systems Systems Total $ 370,000 s $ 390,000 $ 760,000 Sales revenue Cost of goods sold: 78,000 Variable 36,000 42,000 Fixed 260,000 65,000 325,000 $ 296,000 S 107,000 $ 403,000 $ 74,000 S 283,000 $ 357,000 Total cost of goods sold Gross profit Marketing and administrative expenses: Variable 66,000 75,000 141,000 Fixed 44,000 24,000 68,000 Total marketing and administrative exp. $ 110,000 99,000 $ 209,000 S $(36,000) $ 184,000 $ 148,000 Operating income (loss)