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Members of the board of directors of Safety Step have received the following operating income data for the year ended May 31, 2018

Members of the board of directors of Safety Step have received the following operating income data for the year ended May 31, 2018 

(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 $15,000 

Members of the board of directors of Safety Step have received the following operating income data for the year ended May 31, 2018 (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 $15,000 Read the reguirements Requirement 1. Prepare a differential analysis to show whether Safety Step should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.) Data Table Safety Step Income Statement For the Year Ended May 31, 2018 in operating income Product Line Industrial Household Systems Systems Requirements Total Net Sales Revenue $ 310,000 $ 330,000 S 640,000 1. Prepare a differential analysis to show whether Safety Step should drop the industrial systems product line Prepare contribution margin income statements to show Safety Steps 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 leamed from the comparison in Requirement 2? Cost of Goods Sold: 2. Variable Fixed Total Cost of Goods Sold Gross Profit Selling and Administrative Expenses 33,000 230,000 263,000 47,000 48,000 81,000 68,000 298,000 116,000 379.000 214,000 261,000 3. Print Done Variable 72,000 140,000 28,000 71.000 100,000 211,000 $ (64,000) $ 114,000 S 50,000 68,000 43,000 111,000 Fixed Total Selling and Administrative Expenses Operating Income Loss) hoose from any list or enter any number in the input fields and then click Check Answer. PrintDone parts remaining Clear All


Solutions

Expert Solution

1. Statement showing Incremtal Analysis
Contribution Margin Lost , if Industrial Systment is Discontinued
( 310000-33000-68000)		 209000
Less; Fixed Cost Saving if Industrial System is discontinued
(82000+15000)		 97000
Operating Loss 112000
2.. Totla Analysis of Discontinuing a Product Line
Total with Industrial Sys A Total without Industrial Sys B Difference
Sales Revemue 640000 330000 310000
Variable Expense
COGS 81000 48000 33000
Marketing and Admini. Expense 140000 72000 68000
Total Variable Expense 221000 120000 101000
Contribution Margin 419000 210000 209000
Fixed Expense
Cost og Goods Sold* 298000 216000 82000
Marketing and Admini. Expense** 71000 56000 15000
Total Fixed Expense 369000 272000 97000
Operating Income ( Loss) 50000 -62000 112000
* 216000= 2898000-82000
**56000-71000-15000
3. There is no difference between the operating income under contribution format Income statement and the incremental analysis expected decrease in operating income

ekkarill92 answered 2 years ago
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