The condensed income statement for a Fletcher Inc. for the past year is as follo

Question

The condensed income statement for a Fletcher Inc. for the past year is as follows:

Management is considering the discontinuance of the manufacture and sale of Product G 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 Products F and H. What is the amount of change in net income for the current year that will result from the discontinuance of Product G?

a.$20,000 decrease

b.$20,000 increase

c.$30,000 increase

d.$30,000 decrease

Product F G H Total Sales $300,000 $210,000 $340,000 $850,000 Costs: Variable costs $180,000 $180,000 $220,000 $590,000 Fixed costs 50,000 50,000 40,000 140,000 Total costs $230,000 $230,000 $260,000 $730,000 Income (loss) $ 70,000 $(20,000) $ 80,000 $120,000

Explanation / Answer

Hence correct answer is d. $30,000 decrease

Present Without G Sales $8,50,000 $6,40,000 Variable Cost $5,90,000 $4,10,000 Contribution $2,60,000 $2,30,000 Fixed costs $1,40,000 $1,40,000 Income $1,20,000 $90,000 Decrease in Income $30,000

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