Members of the board of directors of Adobe 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 drop the line Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $85.000 and decrease fixed marketing and administrative expenses by $8,000. Requirements 1. Prepare an incremental analysis to show whether Adobe Security should drop the industrial systems product line 2. Prepare contribution margin income statements to show Adobe 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? IN N he in the industrial systems product line More info Product Line Industrial Household Systems Systems Total $ 390,000 $ 400,000 $ 790,000 Sales revenue Cost of goods sold: Variable S 41,000 $ 280,000 51,000 S 92,000 63,000 343,000 Fixed Total cost of goods sold 321,000 114,000 435.000 Gross profit 69.000 286,000 355,000 Marketing and administrative expenses: Variable 63,000 41,000 73,000 24,000 136,000 65,000 Fixed Total marketing and administrative expenses 104,000 97,000 201.000 (35,000) S 189,000 S 154,000 Operating income (loss). Requirement 1. Prepare an incremental analysis to show whether Adobe Security should drop the industrial systems product line. Adobe Security Incremental Analysis of Dropping a Product Line Expected decrease in revenues: Dropping industrial systems sales Expected decrease in expenses. Variable expenses Cost of goods sold Marketing and administrative expenses Fixed expenses Cost of goods sold Marketing and administrative Time Remaining: 0 Sel@ Marketing and administrative expenses Expected decrease in total expenses Expected decrease in operating income Requirement 2. Prepare contribution margin income statements to show Adobe 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 dropped. (Use parentheses or a minus sign for an operating loss.) Adobe Security Total Analysis of Dropping a Product Line Totals With Industrial Totals Without Systems Industrial Systems Decrease If Industrial Systems Is Dropped Sales revenue Variable expenses. Cost of goods sold Marketing and administrative expense Total variable expenses Contribution margin 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 expected decrease in operating income if The operating income difference calculated on the total analysis of dropping a product line Adobe Security drops the industrial systems product line, as shown in Requirement 1. results as the longer approach in Requirement 2 that compares This demonstrates that the incremental analysis approach in Requirement 1 yields total operating income under the two alternatives