Members of the board of directors of Safety Step have received the following operating income data for the year ended May 31, 2018: LOADING...(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 $82,000and decrease fixed selling and administrative expenses by $14,000. Read the requirements LOADING... .

Requirement 1. Prepare a differential analysis to show whether Safety Step should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.)

	Expected decrease in revenues			$(310,000)
	Expected decrease in total variable costs		$105,000
	Expected decrease in fixed costs		96,000
	Expected decrease in total costs			201,000
	Expected decrease	in operating income		$(109,000)

Requirement 2. Prepare contribution margin income statements to show

Safety Step'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.)

Safety Step
Contribution Margin Income Statement
For the Year Ended May 31, 2018
	Totals With	Totals Without	Change if Industrial
	Industrial Systems	Industrial Systems	Systems Is Dropped
Net Sales Revenue	310000	330000	330000
Variable Costs:
Manufacturing
Selling and Administrative
Total Variable Costs
Contribution Margin
Fixed Costs:
Manufacturing
Selling and Administrative
Total Fixed Costs
Operating Income (Loss)

Safety Step
Income Statement
For the Year Ended May 31, 2018
	Product Line
	Industrial Systems	Household Systems	Total
Net Sales Revenue	$310,000	$330,000	$640,000
Cost of Goods Sold:
Variable	36,000	44,000	80,000
Fixed	240,000	64,000	304,000
Total Cost of Goods Sold	276,000	108,000	384,000
Gross Profit	34,000	222,000	256,000
Selling and Administrative Expenses:
Variable	69,000	76,000	145,000
Fixed	45,000	25,000	70,000
Total Selling and Administrative Expenses	114,000	101,000	215,000
Operating Income (Loss)	$(80,000)	$121,000	$41,000