Reference no: EM133535538
Case Study: Sandhill Company makes three models of tasers.
Tingler:
Sales $296,000
Variable expenses $151,700
Contribution Margin $144,300
Fixed expenses $117,800
Net income $26,500
Shocker:
Sales $504,000
Variable expenses $207,900
Contribution Margin $296,100
Fixed expenses $231,800
Net income $64,300
Stunner:
Sales $200,000
Variable expenses $138,200
Contribution Margin $61,800
Fixed expenses $95,000
Net income $(33,200)
Question: 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 $29,000 (Tingler), $80,600 (Shocker), and $35,000 (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 new income. Compute current net income for Sandhill Company.