Safe Zone Income Statement For the Year Ended May 31, 2018 Product Line Industrial Household Systems Systems Total $ 350,000 $ 360,000 $ 710,000 Net Sales Revenue Cost of Goods Sold: Variable 34,000 230,000 49,000 69,000 83,000 299,000 264,000 118,000 382,000 86,000 242,000 328,000 Fixed Total Cost of Goods Sold Gross Profit Selling and Administrative Expenses: Variable Fixed Total Selling and Administrative Expenses Operating Income (Loss) 66,000 45,000 72,000 25,000 138,000 70,000 208,000 111,000 97,000 (25,000) $ 145,000 $ 120,000 Members of the board of directors of Safe Zone have received the following operating income data for the year ended May 31, 2018 B 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 Safe Zone 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 Safe Zone'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.) Safe Zone 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: 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 operating income difference calculated on the total analysis of dropping a product line the expected decrease in operating income if Safe Zone drops the industrial systems product line, as shown in Requirement 1 This demonstrates that the differential analysis approach in Requirement 1 yields result as the longer approach in Requirement 2 that compares total operating income under the two alternatives