Members of the board of directors of Security First 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 wil decrease foed cost of goods sold by $78,000 and decrease fixed marketing and administrative expenses by $8.000 Read the requirements Requirement 1. Prepare an incremental analysis to show whether Security First should discontinue the industrial systems product line Incremental Analysis for Discontinuation Decision Total Contribution margin lost i Industrial Systems is discontinued Less: Fixed cost savings i Industrial Systems is discontinued Operating income it industrial Systems is discontinued Requirement 2. Prepare contribution margin income statements to show Security First's total operating income under the two alternatives: (a) with the industrial systems line and 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? X Data Table data fd Systems 300,000 $ Systems Total 320,000 $ 620,000 Sales revenue $ Less cost of goods sold: Variable nue the 38,000 230,000 44,000 68,000 82,000 298,000 $ 32,000 $ 208,000 $ 240,000 Fixed Gross profit Less marketing and administrative expenses: Variable 66,000 40,000 (74,000) $ 68,000 20,000 134,000 60,000 Fixed operating hat have $ 120,000 $ 46,000 Operating income (loss) at questio Print Done Members of the board of directors of Security First have recnived the following operating income data for Company accountants estimate that discontinuing the industrial systems line wil decrease foxed cost of the year just ended goods sold by $78,000 and decrease fond marketing and administrative expenses by $8.000 (Click the icon to view the operating income data) Read the 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 Begin by preparing the statements with and without the industrial systems in the 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.) Security First Total Analysis of Discontinuing a Product Line Totals With Industrial Systems Totals Without 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 Company accountants estimate that discontinuing the industrial systems line will decrease fond cost of goods sold by $78,000 and decrease food marketing and administrative expenses by 58,000 Read the requirements Members of the board of directors of Security First 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 Marketing and administrative expense Total food expenses Operating income (los) What have you learned from this comparison? The operating income difference calculated on the total analysis of discontinuing a product line quals the expected decrease in operating income il Security First discontinues the industrial systems product line, as shown in Requirement1 This demonstrates that the incremental analysis approach in Requirement 1 yields different results as the longer approach in Requirement that compares total operating income under the two alternatives
