Security First Income Statement For the Year Ended May 31, 2018 Product Line Industrial Household Systems Systems Total Net Sales Revenue $310,000 $330,000 $640,000 Cost of Goods Sold: Variable 35,000 43,000 78,000 Fixed 240,000 64,000 304,000 Total Cost of Goods Sold 275,000 107,000 382,000 Gross Profit 35,000 223,000 258,000 Selling and Administrative Expenses: Variable 68,000 70,000 138,000 Fixed 40,000 22,000 62,000 Total Selling and Administrative Expenses 108,000 92,000 200,000 Operating Income (Loss) $(73,000) $131,000 $58,000 Members of the board of directors of Security First have received the following operating income data for the year ended may 31, 2018. Requirement 1. Prepare a differential analysis to show whether Security First should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.) in operating income 2. Prepare contribution margin income statements to show Security First'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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Security First

Income Statement

For the Year Ended May 31, 2018

	Product Line
	Industrial	Household
	Systems	Systems	Total
Net Sales Revenue	$310,000	$330,000	$640,000
Cost of Goods Sold:
Variable	35,000	43,000	78,000
Fixed	240,000	64,000	304,000
Total Cost of Goods Sold	275,000	107,000	382,000
Gross Profit	35,000	223,000	258,000
Selling and Administrative Expenses:
Variable	68,000	70,000	138,000
Fixed	40,000	22,000	62,000
Total Selling and Administrative Expenses	108,000	92,000	200,000
Operating Income (Loss)	$(73,000)	$131,000	$58,000

Members of the board of directors of Security First have received the following operating income data for the year ended may 31, 2018.

Requirement 1. Prepare a differential analysis to show whether

Security First

should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.)





		in operating income

2.	Prepare contribution margin income statements to show Security First'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?

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