Reference no: EM132462165

Vaughn 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.

Problem (a) Compute current net income for Vaughn Company.

• Net income$

Problem (b) Compute net income by product line and in total for Vaughn 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$

Problem (c) Should Vaughn eliminate the Stunner product line?

• No
• Yes

1. Why or why not?

• Net income would
• increase
• decrease
• from $ to $