Members of the board of directors of Security One have received the following operating income data for the year ended May 31, 2018: E (Click the icon to view the operating income data.) 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 $82,000 and decrease fixed selling and administrative expenses by $10,000. Read the requirements Requirement 1. Prepare a differential analysis to show whether Security One should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.) in operating income Requirements 1. Prepare a differential analysis to show whether Security One should drop the industrial systems product line. 2. Prepare contribution margin income statements to show Security One'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?
Members of the board of directors of Security One have received the following operating income data for the year ended May 31, 2018: E (Click the icon to view the operating income data.) 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 $82,000 and decrease fixed selling and administrative expenses by $10,000. Read the requirements Requirement 1. Prepare a differential analysis to show whether Security One should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.) in operating income Requirements 1. Prepare a differential analysis to show whether Security One should drop the industrial systems product line. 2. Prepare contribution margin income statements to show Security One'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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Members of the board of directors of Security One have received the following operating income data for the year ended May 31, 2018:
E (Click the icon to view the operating income data.)
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 $82,000 and decrease fixed
selling and administrative expenses by $10,000.
Read the requirements.
Requirement 1. Prepare a differential analysis to show whether Security One should drop the industrial systems product line. (Use parentheses or a minus sign
to enter decreases to profits.)
in operating income
Requirements
1. Prepare a differential analysis to show whether Security One should drop the industrial
systems product line.
2. Prepare contribution margin income statements to show Security One'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?
Transcribed Image Text:Security One
Income Statement
For the Year Ended May 31, 2018
Product Line
Industrial
Household
Systems
Systems
Total
Net Sales Revenue
24
330,000 $
360,000 $ 690,000
Cost of Goods Sold:
Variable
36,000
49,000
85,000
Fixed
250,000
65,000
315,000
Total Cost of Goods Sold
286,000
114,000
400,000
Gross Profit
44,000
246,000
290,000
Selling and Administrative Expenses:
Variable
63,000
74,000
137,000
Fixed
45,000
27,000
72,000
Total Selling and Administrative Expenses
108,000
101,000
209,000
Operating Income (Loss)
$4
(64,000) $
145,000 $
81,000
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