Members of the board of directors of Safety Systems have received the following operating income data for

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Members of the board of directors of Safety Systems have received the following operating income data for the year just ended:
Members of the board of directors of Safety Systems have

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 discontinue the line. Company accountants estimate that discontinuing industrial systems will decrease fixed cost of goods sold by $81,000 and decrease fixed marketing and administrative expenses by $14,000.
Requirements
1. Prepare an incremental analysis to show whether Safety Systems should discontinue the industrial systems product line.
2. Prepare contribution margin income statements to show Safety Systems' 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. What have you learned from this comparison?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Managerial Accounting

ISBN: 978-0132890540

3rd edition

Authors: Karen W. Braun, Wendy M. Tietz

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