Members of the board of directors of Safety Systems 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 discontinue the line. Company accountants estimate that discontinuing the industrial systems line will decrease fixed cost of goods sold by $85,000 and decrease fixed marketing and administrative expenses by $9,000 Read the requirements Requirement 1. Prepare an incremental analysis to show whether Safety Systems should discontinue the industrial systems product line. Total Incremental Analysis for Discontinuation Decision Contribution margin lost if Industrial Systems is discontinued Less: Fixed cost savings if Industrial Systems is discontinued Operating income if Industrial Systems is discontinued Requirement 2. Prepare contribution margin income statements to show Safety Systems' 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? Begin by preparing the statements with and without the industrial systems line, then prepare the contribution margin income statement showing the decrease if the industrial systems line is discontinued. (Use parentheses or a minus sign for an operating loss.) Safety Systems Total Analysis of Discontinuing a Product Line Totals With Totals Without Industrial Systems Industrial Systems Difference Sales revenue Variable expenses Cost of goods sold Choose from any list or enter any number in the input fields and then continue to the next question. Company accountants estimate that discontinuing the industrial systems line will decrease fixed cost of goods sold by $85,000 a decrease fixed marketing and administrative expenses by $9,000. Read the requirements. Members of the board of directors of Safety Systems 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 discontinue the line. Totals With Totals Without Industrial Systems Industrial Systems Difference Sales revenue Variable expenses Cost of goods sold Marketing and administrative expense Total variable expenses Contribution margin Fixed expenses: Cost of goods sold Marketing and administrative expense Total fixed expenses Operating income (loss) What have you learned from this comparison? The operating income difference calculated on the total analysis of discontinuing a product line the expected decrease in operating income if Safety Systems discontinues 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. Choose from any list or enter any number in the input fields and then continue to the next question. - X Data Table Safety Systems Product Line Contribution Margin Income Statement For the Year Product lines Industrial Household Company Systems Systems Total Sales revenue $ 320,000 $ 390,000 $ 710,000 Less cost of goods sold: Variable 35,000 43,000 78,000 Fixed 270,000 60,000 330,000 Gross profit $ 15,000 $ 287,000 $ 302,000 Less marketing and administrative expenses: Variable 60,000 77,000 137,000 Fixed 39,000 21,000 60,000 $ Operating income (loss) (84,000) $ 189,000 $ 105,000 Print Done Requirements 1. Prepare an incremental analysis to show whether Safety Systems should discontinue the industrial systems product line. 2. Prepare contribution margin income statements to show Safety Systems' 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? Print Done