Members of the board of directors of Control One have received the following operating income data for the year ended May 31, 2024: (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 $81,000 and decrease fixed selling and administrative expenses by $15,000. Read the requirements. Requirement 1. Prepare a differential analysis to show whether Control One should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.) in operating income Requirement 2. Prepare contribution margin income statements to show Control One'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.) Control One Contribution Margin Income Statement For the Year Ended May 31, 2024 Totals With Totals Without Change if Industrial Systems Is Dropped Industrial Systems Industrial Systems Net Sales Revenue Variable Costs: Manufacturing Selling and Administrative Total Variable Costs Contribution Margin Fixed Costs: Manufacturing Selling and Administrative Total Fixed Costs Operating Income (Loss) Requirement 3. What have you learned from the comparison in Requirement 2? The operating income difference calculated on the total analysis of dropping a product line the expected decrease in operating income if Control One drops the industrial systems product line, as shown in Requirement 1. This demonstrates that the differential analysis approach in Requirement 1 yields result as the longer approach in Requirement 2 that compares total operating income under the two alternatives. TUI HIE Trai Euru Niay vl, ZUZ Product Line Industrial Household Systems Systems Total $ 340,000 $ 360,000 $ 700,000 Net Sales Revenue Cost of Goods Sold: Variable 40,000 230,000 49,000 64,000 89,000 294,000 Fixed 270,000 113,000 383,000 70,000 247,000 317,000 Total Cost of Goods Sold Gross Profit Selling and Administrative Expenses: Variable 65,000 41,000 74,000 24,000 139,000 65,000 Fixed Total Selling and Administrative Expenses 106,000 98,000 204,000 $ (36,000) $ Operating Income (Loss) 149,000 $ 113,000 i Requirements 1. Prepare a differential analysis to show whether Control One should drop the industrial systems product line. 2. Prepare contribution margin income statements to show Control One'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
