Data Table Requirements Security Check Income Statement For the Year Ended May 31, 2018 Product Line 1. Prepare a differential analysis to show whether Security Check should drop the industrial systems product line. 2. Prepare contribution margin income statements to show Security Check'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 Requirement 2? Industrial Household Systems Systems Total $ 360,000 $ 380,000 $ 740,000 Print Done Net Sales Revenue Cost of Goods Sold: Variable Fixed 37,000 260,000 297,000 47,000 63,000 110,000 84,000 323,000 407,000 Total Cost of Goods Sold Gross Profit 63,000 270,000 333,000 Selling and Administrative Expenses: Variable Fixed 64,000 44,000 108,000 (45,000) $ 73,000 137,000 26,000 70,000 99,000 207,000 171,000 $ 126,000 Total Selling and Administrative Expenses Operating Income (Loss) $ Members of the board of directors of Security Check have received the following operating income data for the year ended May 31, 2018: (Click the icon to view the operating Income data.) Members of the board are surprised that the industrial systems product line is not profitable. 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 $80,000 and decrease fixed selling and administrative expenses by $12,000. Read the requirements. Requirement 1. Prepare a differential analysis to show whether Security Check should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.) Expected decrease in revenues $ (360,000) Expected decrease in fixed costs $ 92,000 Expected decrease in total variable costs 101,000 Expected decrease in total costs 193,000 $ (167,000) Expected decrease in operating income Requirement 2. Prepare contribution margin income statements to show Security Check'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. (Use parentheses or a minus sign for an operating loss.) Security Check Contribution Margin Income Statement For the Year Ended May 31, 2018 Totals With Totals Without Industrial Systems Industrial Systems S 380,000 Change if Industrial Systems Is Dropped Net Sales Revenue Variable Costs: Manufacturing 47,000 Security Check Contribution Margin Income Statement For the Year Ended May 31, 2018 Totals With Totals Without Industrial Systems Industrial Systems 380,000 Change if Industrial Systems Is Dropped Net Sales Revenue $ Variable Costs: Manufacturing 47,000 Selling and Administrative Total Variable Costs Contribution Margin Fixed Costs: Manufacturing Selling and Administrative Total Fixed Costs Operating Income (Loss)
