Question

Homework: Ch 25 Probl Score: 0 of 8 pts P25-23A (book/static) 1 of 1 (0 complete O M bers of the board of directors of Security Check have received the following operating income data for the year anded May 31, 2018 o n to view the operating income data) o therboard are surprised that the industrial systems product lines not profitable. They common a study to determine whether the company who decreased cost of goods sold by 500 000 and decreased selling and administrative expenses by $12.000 the Prepa re analysis to show wh ecurity Check should drop the industry produc t s

Answer 1

Particulars	Individual systems	Household systems
Net revenue	360,000	380,000
Variable costs	(37,000)	(47,000)
Contribution	323,000	333,000

The decision to continue or drop a line would be based on how much contribution the line is making towards recouping the overall fixed costs. Further check the tables below:

Particulars	Individual systems	Household systems	Total
Net revenue	360,000	380,000	740,000
Variable costs	(37,000)	(47,000)	(84,000)
Contribution	323,000	333,000	656,000
Fixed costs			(323,000)
Net profit			333,000
By dropping the individual systems product line
Particulars	Individual systems	Household systems	Total
Net revenue	-	380,000	380,000
Variable costs	-	(47,000)	(47,000)
Contribution	-	333,000	333,000
Fixed costs			(231,000)
Net profit			102,000

By dropping the individual systems product line the net profit would reduce to $102,000 and thus the company should not be dropping the individual systems product line. Note: Fixed costs would reduce by $92,000 by dropping the line as indicated in the question.