Company accountants estimate that discontinuing the industrial systems line will decrease foxed cost of goods sold by $83,000 and decrease fixed marketing and administrative expenses by $15,000 Members of the board of directors of Safety Systems have received the following operating income data for the year just ended Click the icon to view the operating income data) Members of the board are surprised that the industrial systems product ineis losing money They commission a study to determine whether the company should discontinue the line Read the requirements Requirement 1. Prepare an incremental analysis to show whether Safety Systems should discontinue the industrial systems product line Incremental Analysis for Discontinuation Decision Total Contribution margin fost Industrial Systems is discontinued Less Feed cost savings i Industrial Systems is discontinued Operating income it Industrial Systems is discontinued Requirement 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? Begin by preparing the statements with and 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) Requirement 2. Prepare contribution margin income statements to show Safety Systems total operating income under the two learned from this comparison? Begin by preparing the statements with and without the industrial systems line, then prepare the contribution margin income sta Safety Systems 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 foxed expenses Operating income (loss) What have you learned from this comparison? the expected decrease in operating income if The operating income difference calculated on the total analysis of discontinuing a product linem Safety Systems discontinues the industrial systems product line, as shown in Requirement 1 results as the longer approach in Requirement that compares This demonstrates that the incremental analysis approach in Requirement 1 yields total operating income under the two alternatives A B D N 3 1 Safety Systems Product Line Contribution Margin Income Statement For the Year 4 Product lines Industrial Household Company 6 Systems Systems Total 7 Sales revenue S 360,000 $ 380 000 $ 740,000 8 Less cost of goods sold: 9 Variable 35.000 40,000 75,000 10 Fixed 270 000 63.000 333,000 11 Gross profit 55.000$ 277,000 $ 332.000 Less marketing and administrative 12 expenses 13 Variable 63.000 76 000 139,000 14 Fixed 38.000 29.000 67 000 15 Operating income (loss) (46.000) 172,000 $ 126.000 AE Company accountants estimate that discontinuing the industrial systems line will decrease foxed cost of goods sold by $83,000 and decrease fixed marketing and administrative expenses by $15,000 Members of the board of directors of Safety Systems have received the following operating income data for the year just ended Click the icon to view the operating income data) Members of the board are surprised that the industrial systems product ineis losing money They commission a study to determine whether the company should discontinue the line Read the requirements Requirement 1. Prepare an incremental analysis to show whether Safety Systems should discontinue the industrial systems product line Incremental Analysis for Discontinuation Decision Total Contribution margin fost Industrial Systems is discontinued Less Feed cost savings i Industrial Systems is discontinued Operating income it Industrial Systems is discontinued Requirement 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? Begin by preparing the statements with and 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) Requirement 2. Prepare contribution margin income statements to show Safety Systems total operating income under the two learned from this comparison? Begin by preparing the statements with and without the industrial systems line, then prepare the contribution margin income sta Safety Systems 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 foxed expenses Operating income (loss) What have you learned from this comparison? the expected decrease in operating income if The operating income difference calculated on the total analysis of discontinuing a product linem Safety Systems discontinues the industrial systems product line, as shown in Requirement 1 results as the longer approach in Requirement that compares This demonstrates that the incremental analysis approach in Requirement 1 yields total operating income under the two alternatives A B D N 3 1 Safety Systems Product Line Contribution Margin Income Statement For the Year 4 Product lines Industrial Household Company 6 Systems Systems Total 7 Sales revenue S 360,000 $ 380 000 $ 740,000 8 Less cost of goods sold: 9 Variable 35.000 40,000 75,000 10 Fixed 270 000 63.000 333,000 11 Gross profit 55.000$ 277,000 $ 332.000 Less marketing and administrative 12 expenses 13 Variable 63.000 76 000 139,000 14 Fixed 38.000 29.000 67 000 15 Operating income (loss) (46.000) 172,000 $ 126.000 AE
