Chapter 25, Problem P25.23APGA

Making Decisions a product decisions

Members of the board of directions of safety Step have received the following operating income data for the year ended may 31, 2016.

Members of board are surprised that the industrial systems product line not profitable. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial system will decrease fixed cost of goods sold by $84,000 and decrease fixed selling and administrative expenses by $11,000

Requirements

l. Prepare a differential analysis to show whether Safety drop the Industrial systems product line.
2. Prepare contribution margin income statements to show Safety Step's total operating income under the alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternative’s income numbers to your answer Requirement 1.
3. What have you learned from the comparison in Requirement 2?