Question

The condensed income statement for a business for the past year is as follows: Product T U Sales $660,000 $320,000 Less variable costs 540,000 220,000 Contribution margin $ 120,000 $100,000 Less fixed costs 145,000 40,000 Income (loss) from operations $ (25,000) $ 60,000 Management is considering the discontinuance of the manufacture and sale of Product T 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 Product U. What is the amount of chang

Answer 1

Decrease in Net Income to the amount of $120,000

Step-by-step explanation:

Some words are missing. The word are "change in net income for the current year that will result from the discontinuance of product T?"

Solution

Product T

Sales $660,000

Less: Variable cost $540,000

Contribution margin $120,000

Interpretation: By discontinuing Product T, therefore there will be a decrease in Net Income to the amount of $120,000