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Members of the board of directors of Safety Step have received the following operating income data for the year ended August 31, 2020: Industrial Household
Members of the board of directors of Safety Step have received the following operating income data for the year ended August 31, 2020: Industrial Household Total Systems Systems Sales Revenue $ 350.000 330.000 60 000 Variable Costs: Variable Cost of Goods Sold 39,000 44,000 $ 83,000 Variable Selling and Administrative 66.0001 75,000 141.000 Total Variable Costs 105,000 119,000 224,000 Contribution Margin 245,000 S 211,000 $ 450.000 Direct Fixed Costs 280,000 66,000 320,000 Segment Margin $ (15,000) 145.000 5 130,000 Common Fixed Costs 39,000 27 000 66,000 Operating Income (Loss) (54,000) 118,000 $ 64,000 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 determine that while direct fixed costs could be saved if the line were eliminated common fixed costs could not As a result of their analysis, they decide to drop the line, reasoning that although they will not save $54,000, but they will save money. REQUIRED: a) Prepare an incremental analysis to support the decision. Be sure to indicate how much the company will save. b) What factors, other than the quantitative analysis (the numbers), would you have considered in making your decision? (List at least two factors.)
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