Three products based on relative sales

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Reference no: EM13923492

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

	Tingler	Shocker	Stunner
Sales	$298,600	$497,400	$197,000
Variable expenses	152,300	207,900	136,000
Contribution margin	146,300	289,500	61,000
Fixed expenses	119,881	229,722	93,797
Net income	$26,419	$59,778	$(32,797)

Fixed expenses consist of $299,900 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $29,700 (Tingler), $79,500 (Shocker), and $34,300 (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.

(a) Compute current net income for Cawley Company.

Net income

(b) Compute net income by product line and in total for Cawley Company if the company discontinues the Stunner product line. (Hint: Allocate the $299,900 common costs to the two remaining product lines based on their relative sales.)(Round answers to the nearest whole dollar, e.g. 5,275.)

Tingler Net Income		$
Shocker Net Income		$
Total Net Income		$

Reference no: EM13923492

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