Requirement 1. Prepare an incremental analysis to show whether Security Force should discontinue the industrial systems product line. Incremental Analysis for Discontinuation Decision Total Contribution margin lost if Industrial Systems is discontinued $ 215,000 Less: Fixed cost savings if Industrial Systems is discontinued 101,000 Operating income lost if Industrial Systems is discontinued 114,000 Requirement 2. Prepare contribution margin income statements to show Security Force'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? Begin by preparing the statements with and without the industrial systems line, then prepare the contribution margin income statement showing the decrease if the industrial systems line is discontinued. (Use parentheses or a minus sign for an operating loss.) Security Force Total Analysis of Discontinuing a Product Line Totals With Totals Without Industrial Systems Industrial Systems Difference Sales revenue $ 660,000 340,000 $ 320,000 Variable expenses: Cost of goods sold 84,000 47,000 37,000 Marketing and administrative expense 142,000 74,000 68.000 Total variable expenses 226,000 121,000 105,000 Contribution margin 434,000 219,000 215,000 Fixed expenses: Cost of goods sold 318,000 234,000 84,000 Marketing and administrative expense 56,000 39,000 17,000 Total fixed expenses 374,000 273,000 101,000 Operating income (loss) 60,000 $ (54,000) $ 114,000 What have you learned from this comparison? The operating income difference calculated on the total analysis of discontinuing a product line equals the expected decrease in operating income if Security Force discontinues the industrial systems product line, as shown in Requirement 1. This demonstrates that the incremental analysis approach in Requirement 1 yields the same results as the longer approach in Requirement 2 that compares total operating income under the two alternatives.Members of the board of directors of Safety Systems have received the following operating income data for the year just ended: Company accountants estimate that discontinuing the industrial systems line will decrease fixed cost of goods sold by $86,000 and decrease fixed marketing and administrative expenses (Click the icon to view the operating income data.) by $12,000. 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. Read the requirements. Requirement 1. Prepare an incremental analysis to show whether Safety Systems should discontinue the industrial systems product line. Incremental Analysis for Discontinuation Decision Total Contribution margin lost if Industrial Systems is discontinued Less: Fixed cost savings if Industrial Systems is discontinued Operating income if Industrial Systems is discontinued - X Data table X Requirements A B C D Safety Systems 1. Prepare an incremental analysis to show whether Safety Systems should discontinue the industrial systems product line. Product Line Contribution Margin Income Statement 2. Prepare contribution margin income statements to show Safety Systems' total For the Year operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives Product lines income numbers to your answer to Requirement 1. What have you learned Industrial Household Company from this comparison? 6 Systems Systems Total 7 Sales revenue 290,000 S 310,000 $ 600,000 8 Less cost of goods sold: Print Done Variable 35,000 39,000 4,000 10 Fixed 270,000 67,00 337,000 11 |Gross profit (15,000) $ 204,000 $ 189,000 2 Less marketing and administrative expenses 13 Variable 63,000 72,00 135,000 14 Fixed 41,000 28,00 69,000 5 Operating income (loss) S (119,000) s 104,000 $ (15,000 Print Done