Re Mermbers of the board of directors of Security Force have received the following operating income data for the year just ended: More Info s product 1. 1 (Click the icon to view the operating income data.) e two the two ison? 2. 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 industrial systems will decrease fixed cost of goods sold by $83,000 and decrease fixed marketing and administrative expenses by $15,000. Product Line ison? Industrial Household Systems Systems Total Security Force 330,000 $ 340,000 S 670,000 Sales revenue... Incremental Analysis of Discontinuing a Product Line Cost of goods sold: Expected decrease in revenues: 43,000 S 78,000 Variable 35,000 $ Discontinuing industrial systems sales 240,000 64,000 304,000 Fixed Expected decrease in expenses: 275,000 107,000 382,000 Total cost of goods sold Variable expenses: Gross profit.... 55,000 233,000 288,000 Cost of goods sold Marketing and administrative expenses: Marketing and administrative expenses Variable 69,000 70,000 139,000 Fixed expenses: 40,000 27,000 67,000 Cost of goods sold Fixed Total marketing and Marketing and administrative expenses 109,000 97,000 206,000 administrative expenses Expected decrease in total expenses (54.000) $ 136,000 S 82,000 2$ Operating income (loss) Expected decrease in operating income Enter any number in the edit fields and then continue to the next question. Print Done avascrint doExereiseld): Requirement 2. Prepare contribution margin income statements under the two alternatives. Begin by preparing the statements with and without the industrial systems line, then prepare the contribution margin income statement showing the decrease if the industrial systems line is discontinued. (Use parentheses or a minus sign for an operating loss.) Security Force Total Analysis of Discontinuing a Product Line Decrease If Totals Without Industrial Systems Totals With Is Discontinued Industrial Systems Industrial Systems 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 (loss) 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 if Security Force discontinues the industrial systems product line, as shown in Requirement 1. This demonstrates that the incremental analysis approach in Requirement 1 yields results as the longer approach in Requirement 2 that compares total operating income under the two alternatives. Enter any number in the edit fields and then continue to the next
