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Prepare and use contribution margin statements for discontinuing a line decision (Learning Objective 4) Members of the board of directors of Security Alliance have received
Prepare and use contribution margin statements for discontinuing a line decision (Learning Objective 4) Members of the board of directors of Security Alliance have received the following operating income data for the year just ended P8-50A Security Alliance Product Line Contribution Margin Income Statement For the Year Product lines Industrial Systems Household Systems Company Total 6 Sales revenue 7Less cost of goods sold 8 Variable 9 Fixed 10 Gross profit 11 Less marketing and administrative expenses: 12 Variable 13 Fixed 14 Operating income (loss 15 310,000 $ 380,000 $ 690,000 32,000 280,000 (2,000 46,000 66,000 268,000 78,000 346,000 266,000 63,000 37,000 102,000 69,000 23,000 176,000 132,000 60,000 74,000 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 systems line will decrease fixed cost of goods sold by $80,000 and decrease fixed marketing and administrative expenses by $11,000
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