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IGNORE THE NUMBERS IN THESE NEXT PICTURES, USED FROM PREVIOUS EXAMPLE!
Members of the board of directors of Deluxe Safety have received the followingCompany accountants estimate that discontinuing the industrial systems line will operating income data for the year just ended: decrease fixed cost of goods sold by $82,000 and decrease fixed marketing and administrative expenses by $13,000 EEB Click the icon to view the operating income data.) Members of the board are surprised that the industrial systems product line isRead the requirements. losing money. They commission a study to determine whether the company should discontinue the line. Requirements iments eluxe Safety should discontinue the industrial systems product line. 2. Prepare contribution margin income statements to show Deluxe Safety's total operating income under the two alternatives: (a) with the industrial systems line income numbers to your answer to Requirement 1. What have you learned from this comparison? Print Done Deluxe Safety Product Line Contribution Margin Income Statement For the Year Product lines Industrial Household Company Systems Systems Total Sales revenue $320,000 $380,000 $ 700,000 Less cost of goods sold Variable 44,000 33,000 77,000 60,000 320,000 260,000 Fixed Gross profit 27,000 $ 276,000 $ 303,000 Less marketing and administrative expenses: Variable 61,000 74,000 135,000 25,000 45,000 70,000 Fixed $(79,000) $177,000 $ 98,000 Operating income (loss) Requirement 1. Prepare an incremental analysis to show whether Security Team should discontinue the industrial systems product line. Incremental Analysis for Discontinuation Decision Total $181,000 Contribution margin lost if Industrial Systems is discontinued 93,000 Less: Fixed cost savings if Industrial Systems is discontinued $ 88,000 Operating income lost if Industrial Systems is discontinued Requirement 2. Prepare contribution margin income statements to show Security Team'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.) Security Team Total Analysis of Discontinuing a Product Line Totals With Totals Without Industrial Systems Industrial Systems Difference 620,000 $ 340,000 $ 280,000 Sales revenue Variable expenses 82,000 46,000 36,000 Cost of goods sold 63,000 140,000 77,000 Marketing and administrative expense 99,000 222,000 123,000 Total variable expenses 398,000 217,000 181,000 Contribution margin Fixed expenses 84,000 304,000 220,000 Cost of goods sold Total variable expenses 398,000 217,000 181,000 Contribution margin Fixed expenses 304,000 220,000 84,000 Cost of goods sold 61,000 9,000 70,000 Marketing and administrative expense 374,000 281,000 93,000 Total fixed expenses 24,000$ (64,000) $ 88,000 Operating income (loss) What have you learned from this comparison? The operating income difference calculated on the total analysis of discontinuing a product line Vthe expected decrease in operating income if Security Team 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
