Question
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 $83,000 and decrease fixed selling and administrative expenses by $14,000. Requirements 1. Prepare a differential analysis to show whether Security First should drop the industrial systems product line. 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 (b) without the line. Compare the difference between the two alternatives' income numbers to your answer to Requirement 1. 3. What have you learned from the comparison in Requirement 2? Print Done Data Table - Security First Income Statement For the Year Ended May 31, 2018 Product Line Industrial Household Systems Systems Total Net Sales Revenue $ 310,000 $ 320,000 $630,000 Cost of Goods Sold: Variable 33,000 44,000 77,000 Fixed 230,000 69,000 299,000 Total Cost of Goods Sold 263,000 113,000 376,000 Gross Profit 47,000 207,000 254,000 Selling and Administrative Expenses: Choose from any list or enter any number in the input fields and then click Check Answer. Variable Fixed 69,000 70,000 139,000 38,000 25,000 63,000 107,000 95,000 202,000 2 parts remaining Total Selling and Administrative Expenses Operating Income (Loss) $ (60,000) $ 112,000 $ 52,000
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