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Company accountants estimate that discontinuing the industrial systems line will decrease fixed cost of goods sold by $78,000 and decrease fixed marketing and administrative expenses by $9,000. Members of the board of directors of 123 Security have received the following operating income data for the year just ended (Click 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. Read the requirements Requirement 1. Prepare an incremental analysis to show whether 123 Security should discontinue the industrial systems product line. Incremental Analysis for Discontinuation Decision Total Contribution margin lost if Industrial Systems is discontinued Less: Fixed cost savings if Industrial Systems is discontinued Operating income If Industrial Systems is discontinued Requirement 2. Prepare contribution margin income statements to show 123 Security'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. What have you learned from this comparison? 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.) 123 Security Total Analysis of Discontinuing a Product Line Totale With Totale Without Choose from any list or enter any number in the input fields and then continue to the next question. V4MM ALPS 20W Members of the board of directors of 123 Security have received the following Company accountants estimate that discontinuing the industrial systems line will operating income data for the year just ended: decrease fixed cost of goods sold by $78,000 and decrease foxed marketing and 1. Click the icon to view the operating income data) administrative expenses by $9,000. Members of the board are surprised that the industrial systems product line is Read the requirements losing money. They commission a study to determine whether the company should discontinue the line Requirement 2. Prepare contribution margin income statements to show 123 Security'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. What have you learned from this comparison? Begin by preparing the statements with and without the industrial systems lino, 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.) 123 Security Total Analysis of Discontinuing a Product Line Totals With Industrial Systems Totals Without Industrial Systems Difference Sales revenue Variable expenses: Cost of goods sold Marketing and administrative expense Total variable expenses Choose from any list or enter any number in the input fields and then continue to the next question 0 0 130 A' POOOOO Read the requirements US losing money. They commission a study to determine whether the company should discontinue the line 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 123 Security discontinues the industrial systems product line, as shown in Requirement 1. the expected decrease in operating income if This demonstrates that the incremental analysis approach in Requirement 1 yields operating income under the two alternatives. results as the longer approach in Requirement that compares total Choose from any list or enter any number in the input fields and then continue to the next question i Data Table cro 123 Security Product Line Contribution Margin Income Statement For the Year Product lines Industrial Household Company Systems Systems Total Sales revenue 290,000 $ 390,000 $ 680,000 Less cost of goods sold: Variable 36,000 45,000 81,000 Fixed 270,000 68,000 338,000 Gross profit (16,000) $ 277,000 $ 261,000 Less marketing and administrative expenses: Variable 69,000 74,000 143,000 Fixed 45,000 27,000 72,000 Operating income (loss) $ (130,000) $. 176,000 $ 46,000 (a) wi nt 1. V pwing to AN Print Done
