Members of the board of directors of Safe Zone have received the following operating income data for the year ended May 31, 2018:

Safe Zone

Income Statement

For the Year Ended May 31, 2018

		Product Line
		Industrial	Household
		Systems	Systems	Total
	Net Sales Revenue	$300,000	$310,000	$610,000
	Cost of Goods Sold:
	Variable	34,000	48,000	82,000
	Fixed	240,000	62,000	302,000
	Total Cost of Goods Sold	274,000	110,000	384,000
	Gross Profit	26,000	200,000	226,000
	Selling and Administrative Expenses:
	Variable	65,000	72,000	137,000
	Fixed	41,000	21,000	62,000
	Total Selling and Administrative Expenses	106,000	93,000	199,000
	Operating Income (Loss)	$(80,000)	$107,000	$27,000

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 $83,000 and decreased fixed selling and administrative expenses by $12,000.

Requirements: 1. Prepare a differential analysis to show whether Safe Zone should drop the industrial systems product line.

2. Prepare contribution margin income statements to show Safe Zone'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?