Members of the board of directors of Security First have received the following operating income data for the year ended May 31, 2018: 6 (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 $82,000 and decrease fixed selling and administrative expenses by $11,000. 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 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 (b) without the line. Compare the difference between the two alternatives' income numbers to your answer to Requirement 1. (Use parentheses or a minus sign for an operating loss.) 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: TIME 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 The operating income difference calculated on the total analysis of dropping a product line Security First drops the industrial systems product line, as shown in Requirement 1. result as the longer approach in Requirement 2 that compares total This demonstrates that the differential analysis approach in Requirement 1 yields operating income under the two alternatives, Data Table Security First Income Statement For the Year Ended May 31, 2018 Product Line Industrial Household Systems Systems Total 330,000 $ 360,000 $ 690,000 Net Sales Revenue Cost of Goods Sold: Variable 40,000 250,000 42,000 65,000 Fixed 82,000 315,000 397,000 Total Cost of Goods Sold 290,000 107.000 40,000 253,000 293,000 Gross Profit Selling and Administrative Expenses: Variable 66,000 45,000 71,000 28,000 137,000 73,000 Fixed Total Selling and Administrative Expenses 111,000 99,000 210,000 $ Operating Income (Loss) 71,000) $ 154,000 $ 83,000 Print Done - X 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