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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 the
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 $14,000. 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 Industrial Housenord Systems Systems Total $ 310,000 $ 330,000 $ 640,000 34,000 230,000 48,000 65,000 82,000 295,000 Net Sales Revenue Cost of Goods Sold: Variable Fixed Total Cost of Goods Sold Gross Profit Selling and Administrative Expenses: Variable 264,000 113,000 377,000 46,000 217,000 263,000 68,000 43,000 75,000 21,000 143,000 64,000 Fixed Total Selling and Administrative Expenses 111,000 96,000 207,000 121,000 $ 56,000 (65,000) $ Operating Income (Loss) 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? Security First Contribution Margin Income Statement For the Year Ended May 31, 2018 Totals With Totals Without Change if Industrial 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)
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