370000 390000 760000 36000 42000 78000

| October 3, 2018

Members of the board of directors
of Safe Zone has received the following operating income data for the year
ended May 31, 2012:

SAFE ZONE
Income Statement
For the Year Ended May 31, 2012

Product Line
Total

Industrial

Systems
Household
Systems

Sales revenue
$370,000
$390,000
$760,000

Cost of goods sold:

Variable
36,000
42,000
78,000

Fixed
260,000
65,000
325,000

Total cost of goods sold
$296,000
$107,000
$403,000

Gross profit
$74,000
$283,000
$357,000

Marketing and administrative expenses:

Variable
66,000
75,000
141,000

Fixed
44,000
24,000
68,000

Total marketing and
administrative exp.
$110,000
$99,000
$209,000

Operating income (loss)
$(36,000)
$184,000
$148,000

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 $84,000 and decrease fixed marketing and
administrative expenses by $14,000.

Requirements:

1. Prepare an incremental analysis to show whether
Safe Zone should drop the industrial systems product line.

2. Prepare
contribution margin income statements to show Safe Zone’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?

Get a 20 % discount on an order above $ 40
Use the following coupon code:
LOBSTER
Positive SSL