The condensed income statement for a Hayden Corp. for the past year is as follows: 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 change in net income for the current year that will result from the discontinuance of Product T?
A) $140,000 increase
B) $5,000 increase
C) $5,000 decrease
D) $140,000 decrease

Question

The condensed income statement for a Hayden Corp. for the past year is as follows:  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 change in net income for the current year that will result from the discontinuance of Product T?
A) $140,000 increase 
B) $5,000 increase 
C) $5,000 decrease 
D) $140,000 decrease

Quizplus · Accepted Answer

The net income for Product T is calculated by subtracting the total variable and fixed costs and expenses from the sales revenue. If Product T is discontinued, the sales revenue and associated costs will be eliminated. However, the total fixed costs and expenses will remain unchanged. Therefore, the net income will decrease by the amount of the contribution margin for Product T, which is $140,000.

The Condensed Income Statement for a Hayden Corp