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Members of the board of directors of Security Alarms have received the following operating income data for the year ended May 31, 2024:

Security Alarms
Income Statement
For the Year Ended May 31, 2024
	Product Line
	Industrial Systems	Household Systems	Total
Net Sales Revenue	$330,000	$360,000	$690,000
Cost of Goods Sold:
Variable	35,000	43,000	78,000
Fixed	240,000	62,000	302,000
Total Cost of Goods Sold	275,000	105,000	380,000
Gross Profit	55,000	255,000	310,000
Selling and Administrative Expenses:
Variable	65,000	76,000	141,000
Fixed	40,000	28,000	68,000
Total Selling and Administrative Expenses	105,000	104,000	209,000
Operating Income (Loss)	$(50,000)	$151,000	$101,000

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 $10,000.

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1. Prepare a differential analysis to show whether Security Alarms should drop the industrial systems product line. 2. Prepare contribution margin income statements to show Security Alarm'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?

Question content area bottom Part 1

Requirement 1. Prepare a differential analysis to show whether Security Alarms should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.)

		in operating income

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