Members of the board of directors of Security Systems have received the following operating income data for the year ended March 31, 2016:

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 selling and administrative expenses by $12,000.
Requirements
1. Prepare a differential analysis to show whether Security Systems should drop the industrial systems product line.
2. Prepare contribution margin income statements to show Security 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.
3. What have you learned from this comparison in Requirement 2?

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SECURITY SYSTEMS Income Statement For the Month Ended March 31, 2016 Product Line Industrial Systems 350,000 Household Systems 380,000 Total Sales Revenue 730,000 Cost of Goods Sold: Variable Fixed Total Cost of Goods Sold Gross Profit Selling and Administrative Expenses 34,000 260,000 294,000 56,000 48,000 65,000 113,000 267,000 82,000 325,000 407,000 323,000 137,000 70,000 207,000 S 116,000 Variable 75,000 27,000 102,000 (49,000 165,000 62,000 43,000 105,000 Fixed Total Selling and Administrative Expenses Operating Income (Loss)