This Website Has Been Moved to a New Link


Members of the board of directors of Safe Zone

Price: $2.50

P20-23A Making dropping a product and product-mix decisions [20–25 min]
Members of the board of directors of Safe Zone have received the following operating
income data for the year ended May 31, 2012:

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.

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?

No comments:

Post a Comment