Members of the board of directors of Security Systems have received the following operating income data for the year just ended: (Cick the icon to view the operating income data) Members of the board are surprised that the industrial systems product line is losing money They Commission a study to determine whether the company should discontinue the line Company accountants estimate that discontinuing the industrial systerline will decrease fbed cost of goods sold by $82.000 and decrease fixed marketing and administrative expenses by $13.000 Read the requirements A B D 1 Security Systems 2 Product Line Contribution Margin Income Statement 3 For the Year 4 Product lines Industrial Household Systems Systems 6 Company Total $ 350,000 $ 390,000 $ 740,000 7 Sales revenue 8 Less cost of goods sold: 9 Variable 10 Fixed 40,000 270,000 40,000 $ 41,000 81,000 65,000 335,000 284,000 $ 324,000 11 Gross profit $ 12 Less marketing and administrative expenses: Print Done 10 Fixed 270,000 40,000 $ 65,000 335,000 284,000 $ 324,000 $ 11 Gross profit 12 Less marketing and administrative expenses: 13 Variable 63,000 38,000 14 Fixed 76,000 139,000 26,000 64,000 182,000 $ 121,000 15 Operating income (loss) $ (61,000) $ Print Done Requirements 1. Prepare an incremental analysis to show whether Security Systems should discontinue the industrial systems product line. 2. Prepare contribution margin income statements to show Security Systems' 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. What have you learned from this comparison? Print Done Requirement 1. Prepare an incremental analysis to show whether Security Systems should discontinue the industrial systems product line Incremental Analysis for Discontinuation Decision Total Contribution margin fost if Industrial Systems is discontinued Less Fixed cost savings if Industrial Systems is discontinued Operating income it Industrial Systems is discontinued Requirement 2. Prepare contribution margin income statements to show Security Systems total operating income under the two ateratives: (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. What have you learned from this comparison? Begin by preparing the statements with and without the industrial systems fine, the prepare the contribution margin income statement showing the decrease if the industrial systems in discontinued (Une parentheses or a minus sign for an operating loss. orihirme Security Systems Total Analysis of Discontinuing a Product Line Totals Without Totals With Industrial Systems Industrial Systems Difference Sales revenue Variable expenses Cost of goods sold Marketing and administrative expense Total variable expenses Contribution margin Fixed expenses Cost of goods sold Marketing and administrative expense Total fixed expenses Operating income (oss) What have you learned from this comparison? What have you learned from this comparison? The operating income difference calculated on the total analysis of discontinuing a product line the expected decrease in operating income Security Systems discontinues the industrial systems product line, as shown in Requirement1 This demonstrates that the incrementalysis approach in Requirement tilde ross the longer approach in equirement that compare operating income under the two alternatives
