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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, 2024: (Click
Members of the board of directors of Security First have received the following operating income data for the year ended May 31, 2024: (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 $81,000 and decrease fixed selling and administrative expenses by $10,000. Read the requirements. Requirement 1. Prepare a differential analysis to show whether Security First should drop the industrial systems product line. in operating income Data table Security First Income Statement For the Year Ended May 31, 2024 Product Line Industrial Systems Net Sales Revenue $ 310,000 $ Household Systems Total 330,000 $640,000 Cost of Goods Sold: Variable Fixed 35,000 210,000 48,000 83,000 66,000 276,000 Total Cost of Goods Sold 245,000 114,000 359,000 Requirements Gross Profit 65,000 216,000 281,000 Selling and Administrative Expenses: 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? Total Selling and Administrative Expenses Variable Fixed 62,000 76,000 138,000 39,000 22,000 61,000 $ Operating Income (Loss) 101,000 (36,000) $ 98,000 199,000 118,000 $ 82,000
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