Members of the board of directors of Safe Zone have received the following operat-ing income data for the year ended May 31, 2014:

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 $ 84,000 and decrease fixed selling and adminis-trative expenses by $ 14,000.

1. Prepare a differential analysis to show whether Safe Zone should drop the ­industrial systems product line.
2. Prepare contribution margn 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. 3. What have you learned from the comparison in Requirement2?

  • CreatedJanuary 16, 2015
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