Making decisions about dropping a productMembers of the board of directors of Security Team have received the following operating income data for the year ended March 31, 2018: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 drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $81,000 and decrease fixed selling and administrative expenses by $15,000.RequirementsPrepare a differential analysis to show whether Security Team should drop the industrial systems product line.Prepare contribution margin income statements to show Security Team’s total operating income under the two alternatives: (a) with the industrial systems line and without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement l.What have you learned from this comparison in Requirement 2? SECURITY TEAMIncome StatementFor the Month Ended March 31, 2018Product LineIndustrialSystemsHouseholdSystemsTotalNet Sales Revenue$ 300,000$ 330,000$ 630,000Cost of Goods Sold:Variable35,00042,0007,000210,00063,000273,000FixedTotal Cost of Goods Sold245,000105,000350,00055,000225,000280,000Gross ProfitSelling and Administrative Expenses:66,00077,000143,000Variable39,00028,00067,000Fixed210,000105,000S 120,000Total Selling and Administrative Expenses105,000Operating income (Loss)S (50,000)$ 70,000

1. Security Team should not drop the industrial system product line because if Security Team drops…

Answered: SECURITY TEAM Income Statement For the…

FINANCIAL ACCOUNTING

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ISBN:9781259964947

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Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Making decisions about dropping a product

Members of the board of directors of Security Team have received the following operating income data for the year ended March 31, 2018:

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 drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $81,000 and decrease fixed selling and administrative expenses by $15,000.

Requirements

Prepare a differential analysis to show whether Security Team should drop the industrial systems product line.
Prepare contribution margin income statements to show Security Team’s total operating income under the two alternatives: (a) with the industrial systems line and without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement l.
What have you learned from this comparison in Requirement 2?

SECURITY TEAM
Income Statement
For the Month Ended March 31, 2018
Product Line
Industrial
Systems
Household
Systems
Total
Net Sales Revenue
$ 300,000
$ 330,000
$ 630,000
Cost of Goods Sold:
Variable
35,000
42,000
7,000
210,000
63,000
273,000
Fixed
Total Cost of Goods Sold
245,000
105,000
350,000
55,000
225,000
280,000
Gross Profit
Selling and Administrative Expenses:
66,000
77,000
143,000
Variable
39,000
28,000
67,000
Fixed
210,000
105,000
S 120,000
Total Selling and Administrative Expenses
105,000
Operating income (Loss)
S (50,000)
$ 70,000

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