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

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

Question

Business

Spencer Carr

8 June, 15:37

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

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

+3

Answers (1)

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Litzy Mullins · Answer 1

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

d.$30,000 decrease

Explanation:

The impact it's a decrease of $30,000 in the net income because the operating income of the product G before the discotinuance it's - $20,000 with a fixed cost of $50,000.

But now with the discotinuance of product G the impact in the total income will be all the fixed cost of $50,000.

The total income of the company with all the products it's $130,000 if the product G it's discontinued the it will have an negativly impact of - $30,000, then the result it's $100,000.

TOTAL

850.000 Sales

-580.000 Variable costs

270.000 Contribution Margin

-140.000 Fixed Cost

-720.000 Total Cost

130.000 Operating Income

Without Product G

TOTAL Product

640.000 Sales

-400.000 Variable costs

240.000 Contribution Margin

-140.000 Fixed Cost

-540.000 Total Cost

100.000 Operating Income

F G H TOTAL Product

300.000 210.000 340.000 850.000 Sales

-180.000 - 180.000 - 220.000 - 580.000 Variable costs

120.000 30.000 120.000 270.000 Cont. Margin

-50.000 - 50.000 - 40.000 - 140.000 Fixed Cost

-230.000 - 230.000 - 260.000 - 720.000 Total Cost

70.000 - 20.000 80.000 130.000 Operating Income

F G H TOTAL Product

300.000 - 340.000 640.000 Sales

-180.000 - - 220.000 - 400.000 Variable costs

120.000 - 120.000 240.000 Cont. Margin

-50.000 - 50.000 - 40.000 - 140.000 Fixed Cost

-230.000 - 50.000 - 260.000 - 540.000 Total Cost

70.000 - 50.000 80.000 100.000 Operating Income