Question

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

		Tingler		Shocker		Stunner
Sales		$295,700		$496,100		$204,400
Variable expenses		154,100		197,700		137,700
Contribution margin		141,600		298,400		66,700
Fixed expenses		116,846		226,109		94,745
Net income		$24,754		$72,291		$(28,045)

Fixed expenses consist of $294,600 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $29,400 (Tingler), $79,400 (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 $294,600 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		$

Answer 1