Members of the board of directors of Security One have received the following operating income data for the year ended May 31, 2018: LOADING... (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.

1. Prepare a differential analysis to show whether Security One should drop the industrial systems product line.

2. Prepare contribution margin income statements to show Security One'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 One
Income Statement
For the Year Ended May 31, 2018
	Product Line
	Industrial Systems	Household Systems	Total
Net Sales Revenue	$300,000	$310,000	$610,000
Cost of Goods Sold:
Variable	33,000	44,000	77,000
Fixed	240,000	62,000	302,000
Total Cost of Goods Sold	273,000	106,000	379,000
Gross Profit	27,000	204,000	231,000
Selling and Administrative Expenses:
Variable	62,000	70,000	132,000
Fixed	45,000	29,000	74,000
Total Selling and Administrative Expenses	107,000	99,000	206,000
Operating Income (Loss)	$(80,000)	$105,000	$25,000