Members of the board of directors of Security Alliance 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 $80,000 and decrease fixed marketing and administrative expenses by $11,000.
Requirements
1. Prepare an incremental analysis to show whether Security Alliance should discontinue the industrial systems product line.
2. Prepare contribution margin income statements to show Security Alliance'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?

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Security Alliance Product Line Contribution Margin Income Statement For the Year Product lines Industrial Systems 310,000 $ Household Company Total 690,000 Systems 380,000 $ Sales revenue Less cost of goods sold: Variable Fixed Gross profit Less marketing and administrative expenses: Variable Fixed Operating income (loss) 46,000 66,000 268,000 S 32,000 280,000 (2,000) $ 78,000 346,000 266,000 63,000 37,000 (102,000) $ 69,000 23,000 176,000 $ 132,000 60,000 74,000