Members of the board of directors of Security Team have received the following operating income data for the year ended March 31, 2018:
SECURITY TEAM
Income Statement
For the Month Ended March 31, 2018

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 $81,000 and decrease fixed selling and administrative expenses by $15,000.
Requirements
1. Prepare a differential analysis to show whether Security Team should drop the industrial systems product line.
2. Prepare contribution margin income statements to show Security Team'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 Requirement 2?

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Product Line Household Systems Industrial Systems Total Net Sales Revenue $ 300,000 $ 330,000 $ 630,000 Cost of Goods Sold: Variable 35,000 42,000 77,000 210,000 63,000 273,000 Fixed 350,000 Total Cost of Goods Sold 245,000 105,000 55,000 280,000 Gross Profit 225,000 Selling and Administrative Expenses: 143,000 Variable 66,000 77,000 Fixed 39,000 28,000 67,000 210,000 Total Selling and Administrative Expenses 105,000 105,000 $ (50,000) $ 120,000 $ 70,000 Operating Income (Loss)