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Members of the board of directors of Security First have received the following operating income data for the year ended May 31, 2018: : (Click
Members of the board of directors of Security First have received the following operating income data for the year ended May 31, 2018: : (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 $80,000 and decrease fixed selling and administrative expenses by $12,000. Read the requirements. Requirement 1. Prepare a differential analysis to show whether Security First should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.) in operating income Data Table TUI IC Ttai Liucu vay UT, ZU TO Product Line Industrial Household Systems Systems Total Net Sales Revenue $ 330,000 $ 390,000 $ 720,000 Cost of Goods Sold: Variable 33,000 44,000 77,000 Fixed 250,000 68,000 318,000 Total Cost of Goods Sold 283,000 112,000 395,000 Gross Profit 47,000 278,000 325,000 Selling and Administrative Expenses: Variable 69,000 76,000 145,000 Fixed 45,000 27,000 72,000 114,000 103,000 217,000 Total Selling and Administrative Expenses $ Operating Income (Loss) (67,000) $ 175,000 $ 108,000 Print Done Industrial Systems Industrial Systems Systems Is Dropped Net Sales Revenue Variable Costs: Manufacturing Selling and Administrative Total Variable Costs Contribution Margin Fixed Costs: Manufacturing Selling and Administrative Total Fixed Costs Operating Income (Loss) Requirement 3. What have you learned from the comparison in Requirement 2? the expected decrease in operating income if Control One drops the industrial systems product line, as The operating income difference calculated on the total analysis of dropping a product line shown in Requirement 1. This demonstrates that the differential analysis approach in Requirement 1 yields result as the longer approach in Requirement 2 that compares total operating income under the two alternatives
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