Question

Question 1 Cawley Company makes three models of tasers. Information on the three products is given below. Tingler Shocker Stunner Sales $295,400 $496,600 $201,000 Variable expenses 150,300 196,800 136,900 Contribution margin 145,100 299,800 64,100 Fixed expenses 121,116 233,081 96,503 Net income $23,984 $66,719 $(32,403) Fixed expenses consist of $307,300 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $29,700 (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 $307,300 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

a. Current Net income:

Cawley Company	Tingler	Shocker	Stunner	Total
Sales	295,400	496,600	201,000	993,000
Less: Variable expenses	150,300	196,800	136,900	484,000
Contribution Margin	145,100	299,800	64,100	509,000
Less: Fixed expenses	91,416	153,681	62,203	307,300
Less: Other fixed expenses	29,700	79,400	34,300	143,400
Net Income	23,984	66,719	(32,403)	58,300

b. Net income if Stunner is discontinued:

Cawley Company	Tingler	Shocker	Stunner	Total
Sales	295,400	496,600		792,000
Less: Variable expenses	150,300	196,800		347,100
Contribution Margin	145,100	299,800	-	444,900
Less: Fixed expenses	114,617	192,683	-	307,300
Less: Other fixed expenses	29,700	79,400		109,100
Net Income	783	27,717	-	28,500