Newell Company presently has three product lines: paper, stamps, and printer ink. The company is considering discontinuing the stamp line. The stamp line has the following current data: Given this information, if Newell discontinues the stamp line, net income would:

Question

Newell Company presently has three product lines: paper, stamps, and printer ink. The company is considering discontinuing the stamp line. The stamp line has the following current data:  Given this information, if Newell discontinues the stamp line, net income would:

Quizplus · Accepted Answer

The stamp line has a contribution margin of $3 per unit ($15 - $12) and is currently selling 2,000 units per year. Therefore, the stamp line is generating $6,000 ($3 x 2,000) in net income. If the stamp line is discontinued, this $6,000 in net income will be lost, resulting in a decrease in net income by $6,000. Therefore, the correct answer is B.

Newell Company Presently Has Three Product Lines: Paper, Stamps, and Printer