Members of the board of directors of Security Check have received the following operating income data for

Question:

Members of the board of directors of Security Check have received the following operating income data for the year ended May 31, 2018:
SECURITY CHECK
Income Statement
For the Year Ended May 31, 2018
Product Line Industrial Household Systems Systems Total $ 360,000 $ 380,000 $ 740,000 Net Sales Revenue Cost of Goods So

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 $80,000 and decrease fixed selling and administrative expenses by $12,000.
Requirements
1. Prepare a differential analysis to show whether Security Check should drop the industrial systems product line.
2. Prepare contribution margin income statements to show Security Check'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?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Horngrens Accounting

ISBN: 978-0134674681

12th edition

Authors: Tracie L. Miller nobles, Brenda L. Mattison, Ella Mae Matsumura

Question Posted: