Company accountants estimate that discontinuing the industrial systems line will decrease fixed cost of goods sold by $77,000 and decrease fixed marketing and administrative expenses by $15,000. Members of the board of directors of Security Force have received the following operating income data for the year just ended: E (Click the icon to view the operating income data.) 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. Read the requirements. i Data Table Security Force Product Line Contribution Margin Income Statement For the Year Product lines Industrial Household Company Systems Systems Total Sales revenue $ 280,000 $ 320,000 $ 600,000 Less cost of goods sold: Variable 31,000 44,000 75,000 Fixed 220,000 68,000 288,000 Gross profit 29,000 $ 208,000 $ 237,000 Less marketing and administrative expenses: Variable 69,000 75,000 144,000 43,000 26,000 69,000 Fixed $ (83,000) $ 107,000 $ 24,000 Operating income (loss) Print Done Requirement 1. Prepare an incremental analysis to show whether Security Force should discontinue the industrial systems product line Total Incremental Analysis for Discontinuation Decision Contribution margin lost if Industrial Systems is discontinued Less: Fixed cost savings if Industrial Systems is discontinued Operating income if Industrial Systems is discontinued Requirement 2. Prepar your answer to Requires gained 1 income statements to show Security Force's total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the diference between the two alternatives' income numbers to ou learned from this comparison? Begin by preparing the without the industrial systems line, then prepare the contribution margin income statement showing the decrease if the industrial systems line is discontinued. (Use parentheses or a minus sign for an operating loss.) Security Force Total Analysis of Discontinuing a Product Line Totals Without Totals With Industrial Systems Industrial Systems Difference Sales revenue Variable expenses: Cost of goods sold Marketing and administrative expense Total variable expenses Contribution margin Fixed expenses: Cost of goods sold Marketing and administrative expense Total fixed expenses Operating income (loss) What have you learned from this comparison? The operating income difference calculated on the total analysis of discontinuing a product line the expected decrease in operating income if Security Force discontinues the industrial systems product line, as shown in Requirement 1. This demonstrates that the incremental analysis approach in Requirement 1 yields results as the longer approach in Requirement 2 that compares total operating income under the two alteratives What have you leamed from this comparison? The operating income difference calculated on the total analysis of discontinuing a product line the expected decrease in operating income if Security Force discontinues the industrial systems product line, as shown in Requirement 1. This demonstrates that the incremental analysis approach in Requirement 1 yields results as the longer approach in Requirement 2 that compares total operating Income under the two altematives Choose from any list or enter any number in the input fields and then continue different tion. the same
