Cawley Company makes three models of tasers. Information on the
three products is given below.
|
|
Tingler |
|
Shocker |
|
Stunner |
|
| Sales |
|
$300,000 |
|
$500,000 |
|
$200,000 |
|
| Variable expenses |
|
152,300 |
|
207,900 |
|
136,000 |
|
| Contribution margin |
|
147,700 |
|
292,100 |
|
64,000 |
|
| Fixed expenses |
|
120,000 |
|
229,500 |
|
94,300 |
|
| Net income |
|
$27,700 |
|
$62,600 |
|
$(30,300) |
|
Fixed expenses consist of $300,000 of common costs allocated to the
three products based on relative sales, as well as direct fixed
expenses unique to each model of $30,000 (Tingler), $79,500
(Shocker), and $34,300 (Stunner). The common costs will be incurred
regardless of how many models are produced. The direct fixed
expenses would be eliminated if that model is phased out.
James Watt, an executive with the company, feels the Stunner line
should be discontinued to increase the company’s net income.
(a)
Compute current net income for Cawley Company.
(b)
Compute net income by product line and in total for Cawley Company
if the company discontinues the Stunner product line.
(Hint: Allocate the $300,000 common costs to the two
remaining product lines based on their relative sales.)
| Tingler Net Income |
|
$ |
|
| Shocker Net Income |
|
$ |
|
| Total Net Income |
|
$ |
|
(c)
Should Cawley eliminate the Stunner product line?
YesNo
Why or why not?
| Net income would
decreaseincrease from $ to
$ |