Reference no: EM132613045

Cawley Company makes three models of tasers. Information on the three products is given below.

                                                Tingler                Shocker                    Stunner

Sales                           $296,000               $504,000               $200,000

Variable expenses            151,100                203,300                   138,600

Contribution margin           144,900                  300,700                      61,400

Fixed expenses                  116,616               228,184                         93,900

Net income                           $28,284               $72,516                 $(32,500)

Fixed expenses consist of $296,000 of common costs allocated to the three products based on relative sales, as well as direct fixed expenses unique to each model of $29,000 (Tingler), $79,000 (Shocker), and $34,700 (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.

Question (a) Compute current net income for Cawley Company.

Question (b) Compute net income by product line and in total for Cawley Company if the company discontinues the Stunner product line. (Hint: Allocate the $296,000 common costs to the two remaining product lines based on their relative sales.)

Question (c) Should Cawley eliminate the Stunner product line?