Question

Please answer B

Safe and Secure, Inc. produces three models of home security systems. Information on the three products is given below:

		Assurance		Decoder		Burglar Beware
Sales		$455,400		$759,000		$303,600
Variable expenses		227,700		303,600		212,520
Contribution margin		227,700		455,400		91,080
Fixed expenses		176,400		345,000		142,800
Net income		$51,300		$110,400		$(51,720	)

Fixed expenses consist of $446,600 of common costs allocated to the three products based on relative sales, and additional fixed costs of $44,400 (Assurance), $121,400 (Decoder), and $51,800 (Burglar Beware). 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.

Matt Dillon, an executive with the company with extensive law enforcement background, feels that the Burglar Beware line should be discontinued to increase the company’s net income.

(a)

Correct answer iconYour answer is correct.

Compute current net income for Safe and Secure, Inc. (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).)

Net income

$

109980

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(b)

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Compute net income by product line and in total for Safe and Secure, Inc., if the company discontinues the Burglar Beware product line. (Hint: Allocate the $446,600 common costs to the two remaining product lines based on their relative sales.) (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).)

		Assurance		Decoder		Company Total
Net income		$		$		$

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(c)

Answer 1

(b)

	Assurance	Decorder	Total
Sales	$        455,400	$         759,000	$       1,214,400
Variable Expenses	$        227,700	$         303,600	$          531,300
Contribution Margin	$        227,700	$        455,400	$          683,100
Traceable Fixed Costs	$          44,400	$         121,400	$          165,800
Common Fixed Costs	$        167,475	$         279,125	$          446,600
Total Fixed Costs	$        211,875	$         400,525	$          612,400
Net Operating Income	$          15,825	$           54,875	$            70,700

(c)
Burglar Beware line should not be discontinued as net income decreased by $39280