Reference no: EM132804632

Problem - 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	150,000	200,000	145,000
Contribution margin	150,000	300,000	55,000
Fixed expenses	120,000	230,000	95,000
Net income	$30,000	$70,000	$(40,000)

Fixed expenses consist of $300,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $30,000 (Tingler), $80,000 (Shocker), and $35,000 (Stunner). 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. James Watt, an executive with the company, feels the Stunner line should be discontinued to increase the company's net income.

Required -

(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.

(c) Should Cawley eliminate the Stunner product line? Why or why not?