i Data Table N 3 4 A B 1 123 Security Product Line Contribution Margin Income Statement For the Year 4 Product lines Industrial Household Company 6 Systems Systems Total 7 Sales revenue $ 350,000 $ 380,000 $ 730,000 8 Less cost of goods sold: 9 Variable 37,000 40,000 77,000 10 Fixed 260,000 65,000 325,000 11 Gross profit $ 53,000 $ 275,000 $ 328,000 12 Less marketing and administrative expenses: 13 Variable 67,000 76,000 143,000 14 Fixed 40,000 26,000 66,000 15 Operating income (loss) $ (54,000) $ 173,000 $ 119,000 Print Done Company accountants estimate that discontinuing the industrial systems line will decrease fixed cost of goods sold by $81,000 and decrease fixed marketing and administrative expenses by $13,000. Members of the board of directors of 123 Security 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 line is 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 123 Security should discontinue the industrial systems product line. Incremental Analysis for Discontinuation Decision Total Contribution margin lost if Industrial Systems is discontinued 313000 Less: Fixed cost savings if Industrial Systems is discontinued 94000 Operating income lost if Industrial Systems is discontinued 219000 Requirement 2. Prepare contribution margin income statements to show 123 Security'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. 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.) FIL 123 Security Total Analysis of Discontinuing a Product Line Totals With Industrial Systems 730000 Totals Without Industrial Systems 380000 Difference (350000) Sales revenue Variable expenses: Cost of goods sold 77000 40000 76000 (37000) (67000) 143000 Marketing and administrative expense 220000 116000 Total variable expenses (104000) Contribution margin 510000 264000 (246000) Fixed expenses: Cost of goods sold 325000 Marketing and administrative expense Total fixed expenses Operating income (loss) What have you learned from this comparison? the expected decrease in operating income if 123 Security discontinues the industrial systems product line, as shown in The operating income difference calculated on the total analysis of discontinuing a product line Requirement 1. This demonstrates that the incremental analysis approach in Requirement 1 yields V results as the longer approach in Requirement 2 that compares total operating income under the two alternatives