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

Discontinuing Product T will result in a decrease in sales revenue and contribution margin equal to the current amount generated by Product T. According to the income statement, Product T generates $140,000 in sales revenue and $80,000 in contribution margin. Therefore, the discontinuance of Product T will result in a $140,000 decrease in net income for the current year.

The Condensed Income Statement for a Hayden Corp