The condensed income statement for a fletcher inc. for the past year is as follows: product f g h total sales $300,000 $210,000 $340,000 $850,000 costs: variable costs $(180,000) $(180,000) $(220,000) $(590,000) fixed costs (50,000) (50,000) (40,000) (140,000) total costs $(230,000) $(230,000) $(260,000) $(730,000) income (loss) $70,000 $(20,000) $80,000 $120,000
management is considering the discontinuance of the manufacture and sale of product g 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 products f and h. what is the amount of change in net income for the current year that will result from the discontinuance of product g?
a.$20,000 decrease
b.$20,000 increase
c.$30,000 increase
d.$30,000 decrease

What is the amount of change in net income for the current year that will result from the discontinuance of Product G?

d.$30,000 decrease

Explanation:

The impact it's a decrease of $30,000 in the net income because the operating income of the product G before the discotinuance it's -$20,000 with a fixed cost of  $50,000.

But now with the discotinuance of product G the impact in the total income will be all the fixed cost of $50,000.

The total income of the company with all the products it's $130,000 if the product G it's discontinued the it will have an negativly impact of -$30,000, then the result it's $100,000.

TOTAL    

850.000  Sales

-580.000  Variable costs

270.000  Contribution Margin

-140.000  Fixed Cost

-720.000  Total Cost

130.000  Operating Income

Without Product G

TOTAL    Product  

640.000  Sales

-400.000  Variable costs

240.000  Contribution Margin

-140.000  Fixed Cost

-540.000  Total Cost

100.000  Operating Income

    F               G               H             TOTAL  Product  

300.000   210.000   340.000   850.000  Sales

-180.000  -180.000  -220.000  -580.000  Variable costs

120.000   30.000    120.000   270.000  Cont. Margin

-50.000  -50.000  -40.000  -140.000  Fixed Cost

-230.000  -230.000  -260.000  -720.000  Total Cost

70.000    -20.000    80.000    130.000  Operating Income

    F                    G              H              TOTAL      Product  

300.000          -        340.000   640.000  Sales

-180.000           -      -220.000  -400.000  Variable costs

120.000          -        120.000   240.000  Cont. Margin

-50.000    -50.000  -40.000  -140.000  Fixed Cost

-230.000  -50.000  -260.000  -540.000  Total Cost

70.000    -50.000    80.000    100.000  Operating Income

one of the appeals of a sole proprietorship is that business expenses are kept separate from your personal income tax return