Members of the board of directors of Safety Step have received the following operating income data for the year ended May 31, 2016:

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 administrative expenses by $11,000.
Requirements
1. Prepare a differential analysis to show whether Safety Step should drop the industrial systems product line.
2. Prepare contribution margin income statements to show Safety Step€™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 Requirement 2?

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SAFETY STEP Income Statement For the Year Ended May 31, 2016 Product Line Industrial Household Systems Systems Total 340,000 370,000 710,000 Sales Revenue Cost of Goods Sold: Variable Fixed Total Cost of Goods Sold Gross Profit Selling and Administrative Expenses: 35,000 240,000 275,000 65,000 46,000 69,000 115,000 255,000 81,000 309,000 390,000 320,000 75,000 25,000 100,000 (39,000) 155,000 116,000 Variable 63,000 41,000 104,000 138,000 66,000 204,000 Fixed Total Selling and Administrative Expenses Operating Income (Loss)