Members of the board of directors of Adobe Security One have received the following operating income data for the year just ended:

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 $ 84,000 and decrease fixed marketing and administrative expenses by $ 12,000.

Requirements
1. Prepare an incremental analysis to show whether Adobe Security One should discontinue the industrial systems product line.
2. Prepare contribution margin income statements to show Adobe Security's total oper-ating 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 thiscomparison?

Transcribed Image Text:

Adobe Security Product Line Contribution Margin Income Statement For the Year Product lines ndustrial Systems Household Systerms Company Total 330,000 380,000 710,000 79,000 6 Sales revenue 7Less cost of goods sold: 46,000 63000 47000 266000313,000 8Variable 33,000 250,000 9 Fixed 10 Gross pront 318,000 11 Less marketing and administrative expenses: 12Variable 13 Fixed 63,000 43,000 77000 24,000 140,000 14 Operating income floss) 15