Question

Challenge Exercise 7-2 (Part Level Submission)

Safe and Secure, Inc. produces three models of home security systems. Information on the three products is given below:

		Assurance		Decoder		Burglar Beware
Sales		$443,700		$739,500		$299,300
Variable expenses		221,850		295,800		209,510
Contribution margin		221,850		443,700		89,790
Fixed expenses		182,500		347,300		144,300
Net income		$39,350		$96,400		$(54,510	)

Fixed expenses consist of $457,800 of common costs allocated to the three products based on relative sales, and additional fixed costs of $44,300 (Assurance), $119,000 (Decoder), and $53,000 (Burglar Beware). The common costs will be incurred regardless of how many models are produced. The other fixed expenses would be eliminated if a model is phased out.

Matt Dillon, an executive with the company with extensive law enforcement background, feels that the Burglar Beware line should be discontinued to increase the company’s net income.

(d)

Assume instead that fixed expenses consist of $146,910 of common costs allocated to the three products equally, and additional fixed costs of $130,700 (Assurance), $296,900 (Decoder), and $99,590 (Burglar Beware). The common costs will be incurred regardless of how many models are produced. The other fixed expenses would be eliminated if a model is phased out. Compute net income by product line and in total for Safe and Secure, Inc., if the company discontinues Burglar Beware product line. Should Safe and Secure, Inc., eliminate the Burglar Beware product line? Why or why not? (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).)

		Assurance		Decoder		Company Total
Net income		$		$		$

YesNo

, the total net income for the company is

higherlowersame

when the Burglar Beware product line is excluded.

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Answer 1