Question

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

	Tingler	Shocker	Stunner
Sales	304000	496000	200000
Variable Expenses	149800	193300	139400
Contribution Margin	154200	302700	60600
Fixed Expenses	119984	226816	93200
Net Income	34216	75884	(32600)

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 $30,000 (Tingler), $80,000 (Shocker), and $34,000 (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 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 $296,000 common costs to the two remaining product lines based on their relative sales.)

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

(c)

Should Cawley eliminate the Stunner product line?

                                                          NoYes

Why or why not?

Net income would                                                           increasedecrease from $  to $

Answer 1