Question

Members of the board of directors of Security Team have received the following operating income data for the year just ended: (Click the icon to view the operating income data.) 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 fond cost of goods sold by $81,000 and decrease fored marketing and administrative expenses by $15,000 Read the requirements. Requirement 1. Prepare an incremental analysis to show whether Security Team should discontinue the industrial systems product line. Incremental Analysis for Discontinuation Decision Contribution margin lost if Industrial Systems is discontinued Less: Fixed cost savings if Industrial Systems is discontinued Operating income Industrial Systems is discontinued Requirement 2. Prepare contribution margin income statements to show Security Team'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 the industrial systems line is discontinued. (Use parentheses or a minus sign for an operating loss.) Security Team Total Analysis of Discontinuing a Product Line Choose from any list or enter any number in the input fields and then continue to the next question

Answer 1

Page ① Date: 11 Page No.: Calculation of contribution Margin from Industrial Systems : sales Revenue luss : variable cost of us: variable marketing goods sold i and odministrative expenses $ 280000 ($34000) ( $ 66000) contribution Margin $180000 Incremental Analysis for Discontinuation Decision $ 180000 contribution margin lost it Industrial systems - is discontinued Less: fixed cost saving if Industrial systems is discontinued ($81000 + $15000) ($ 96000) if Industrial Operating income DECREASES Systems is discontinued $ 84000

Page No. Page ③ Totals with Industrial System Difference Totals without Industrial System $ 650000 $370000 ($280000) sales Revenue Jomalbu expe хлал : cost of goods told - Marketing and admin expenry Total variable expenses $82000 $ 140000 $48000 $ 74000 ($34000) ($6600o) 222000 $122000 ($10000) contribution Margin 428ooo $ 248000 ($180000) $30 5000 $ 224000 $81000) fixed experin: cost of goods fold marketing and admin expense $65000 $ 5oooo ( $15000) - Total fixed - expense TO000 ( $96000) $ 274000 Operating Income $ 58000 ($26000) ($84000) hon)

Page ① Date:_Page No. The operating income difference calculated on the total analysis of discontinuing a product line -EQUALS the expected decrean in operating income if security team discontinues the industrial systems product line, as shown in requirent 1 This demonstrates that the approach in requirement as the longer approach compares total Operating two altonatives incremental analysis 1 yields SAME results in requirement 2 that income under the