Members of the board of directors of Deluxe Safety 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 $84,000 and decrease fixed marketing and administrative expenses by $16.000 Requirements Prepare an incremental analysis to show whether Deluxe Safety should drop the industrial systems product line. 2. Prepare contribution margin income statements to show Deluxe Safety'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? Requirement 1. Prepare an incremental analysis to show whether Deluxe Safety should drop the industrial systems product line. - X More info Product Line Industrial Household Systems Systems Total 380,000 S 400,000 $ 780,000 Deluxe Safety 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 expenses Sales revenue Cost of goods sold: Variable Fixed 37,000 $ 270,000 307,000 47,000 $ 64,000 84,000 334,000 111,000 418,000 73,000 289,000 362,000 Total cost of goods sold Gross profit.. Marketing and administrative expenses: Variable Expected decrease in total expenses 60,000 47,000 73,000 25,000 133,000 72,000 Expected decrease in operating income Fixed Total marketing and administrative expenses 107,000 98,000 205,000 s'income numbers to your answer to Requirement 1. What have you learned from this comparison? Requirement 2. Prepare contribution margin income statements to show Deluxe Safety's total operating income under the two alternatives: Begin by preparing the statements with and without the industrial systems line, then prepare the contribution margin income statement show (34,000) S 191,000 $ 157,000 Operating income (loss).. y loss.) Deluxe Safety Total Analysis of Dropping a Product Line Totals With Industrial Totals Without Systems Industrial Systems O Print Decrease If Industrial Systems Is Dropped Done Sales revenue Variable expenses Cost of goods sold Marketing and administrative expense Total variable expenses Contribution margin Fived evnences Members of the board of directors of Deluxe Safety 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 $84,000 and decrease fixed marketing and administrative expenses by $16,000 Requirements Prepare an incremental analysis to show whether Deluxe Safety should drop the industrial systems product line. 2. Prepare contribution margin income statements to show Deluxe Safety'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 What have you learned from this comparison? - X expenses Fixed expenses Cost of goods sold Marketing and administrative expenses More info Expected decrease in total expenses Product Line Industrial Household Systems Systems Total 380,000 $ 400,000 $ 780,000 Expected decrease in operating income s'income numbers to your answer to Requirement 1. What have you learned from this comparison? Requirement 2. Prepare contribution margin income statements to show Deluxe Safety's total operating income under the two alternatives: Begin by preparing the statements with and without the industrial systems line, then prepare the contribution margin income statement show Sales revenue Cost of goods sold: Variable y loss.) 37,000 S 84,000 47,000 $ 64,000 Fixed 270,000 334,000 Deluxe Safety Total Analysis of Dropping a Product Line Totals With Industrial Totals Without Systems Industrial Systems 307,000 111,000 418,000 Decrease If Industrial Systems Is Dropped 73.000 289,000 362,000 Total cost of goods sold Gross profit... Marketing and administrative expenses: Variable Sales revenue Variable expenses: 60,000 47,000 73,000 25,000 133,000 72,000 Cost of goods sold Marketing and administrative expense Fixed Total marketing and administrative expenses 107.000 98,000 205,000 (34,000) S 191,000 $ 157,000 Total variable expenses Operating income (loss). Contribution margin Fixed expenses: Cost of goods sold Marketing and administrative expense Print Done Total fixed expenses Operating income (loss) different What have you learned from this comparison? the same The operating income difference calculated on the total analysis dropping a prodi the expected decrease in operating income if Deluxe Safety drops the industrial systems product line, as shown in Requirement 1. This demonstrates that the incremental analysis approach in Requirement 1 yields results as the longer approach in Requirement 2 that compares total operating income under the two alternatives. Time Remaining: 02:38:35 Next