Product 130,000 Management is considering the discontinuance of the manufacture

Question

Product

130,000

Management is considering the discontinuance of the manufacture and sale of Blam at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Wham

What is the amount of change in net income for the current year that will result from the discontinuance of Blam?

Wham Blam sales 300,000 200,000 less variable cost 180,000

130,000

contribution margin 120,000 70,000 less Fixed cost 90,000 60,000 Income (loss) from operations 30,000 10,000

Explanation / Answer

the following will be the income statement if Blam is discontinued:

so there will be a net loss of 30,000 if Blam is discontinued.

amount of change in net income = new net income - existing net income

=> - 30,000 - (30,000+10,000)

=> - 70,000.

so the net income reduces by 70,000 if Blam is discontinued.

sales 300,000 less:variable cost (180,000) contribution margin 120,000 less: fixed cost (90,000 + 60,000) (150,000) net income (loss) (30,000)

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