Homework SourseProduct 130000 Management is considering the discontinuance
Product
130,000
Management is considering the discontinuance of the manufacture and sale of Blam 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 Wham
What is the amount of change in net income for the current year that will result from the discontinuance of Blam?
| Wham | Blam | |
| sales | 300,000 | 200,000 |
| less variable cost | 180,000 | 130,000 |
| contribution margin | 120,000 | 70,000 |
| less Fixed cost | 90,000 | 60,000 |
| Income (loss) from operations | 30,000 | 10,000 |
Solution
the following will be the income statement if Blam is discontinued:
so there will be a net loss of 30,000 if Blam is discontinued.
amount of change in net income = new net income - existing net income
=> - 30,000 - (30,000+10,000)
=> - 70,000.
so the net income reduces by 70,000 if Blam is discontinued.
| sales | 300,000 |
| less:variable cost | (180,000) |
| contribution margin | 120,000 |
| less: fixed cost (90,000 + 60,000) | (150,000) |
| net income (loss) | (30,000) |
