PS-50A Prepare and use contribution margin statements for discontinuing a line decision (Learning Objective 4) Members of the board of directors of Security Alliance have received the following operating income data for the year just ended: Security Alliance Product Line Contribution Margin Income Statement D 1 2 3 4 For the Year Product lines Industrial Household Systems Systems Company Total 6 Sales revenue S 310,000 $ 380,000 $ 690,000 7 Less cost of goods sold: 8 Variable 32,000 46,000 78,000 9 Fixed 280,000 66,000 346,000 10 Gross profit $ (2,000) 5 268,000 $ 266,000 11 Less marketing and administrative expenses 12 Variable 63,000 69,000 132,000 13 Fixed 37,000 23.000 60.000 14 Operating income (loss) (102,000) 176,000 74,000 15 Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the e 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