After a few years of successful business, Thomas saw the need to diversify his business to take advantage of the growth potential of new markets. Doing so also reduces the business risk. He set up a new company that sells 3 models of tables: Russian style, Italian style, and Mexican style. His targeted market was in NYC where there is huge demand for those products. Operating results for June are below:

Russian style Italian style Mexican style Total
Units sold 400 450 350 1,200
Revenue $36,000 $22,500 $35,000 $93,500
Variable departmental costs 14,000 13,500 17,500 45,000
Avoidable fixed costs 6,000 4,000 5,000 15,000
Unavoidable fixed costs 8,000 9,000 7,000 24,000
Net income $ 8,000 ($ 4,000) $ 5,500 $ 9,500

a. If Italian style is discontinued, management estimates that sales of Russian style will increase by 20%. In good form, prepare an incremental analysis to determine if Italian style should be discontinued.

b. What qualitative factors should Thomas consider relating question (a)?

c. Should Italian style be discontinued based solely on quantitative aspects? Briefly justify your response.

d. Without creating new income statements, and using your results from your analysis in part A, determine the amount of the company’s new net income if Italian style is discontinued. Show your calculations.