Compute net income by product line and in total for Cawley Company if the compan

Question

Compute net income by product line and in total for Cawley Company if the company discontinues the Stunner product line. (Hint: Allocate the $300,000 common costs to the two remaining product lines based on their relative sales.) (Round answers to the nearest whole dollar, e.g. 5,275.)

Cawley Company makes three models of tasers. Information on the three products is given below.
Tingler Shocker Stunner Sales $304,500 $501,350 $198,140 Variable expenses 146,750 200,700 137,120 Contribution margin 157,750 300,650 61,020 Fixed expenses 120,703 230,112 93,765 Net income $  37,047 $  70,538 $ (32,745)
Fixed expenses consist of $300,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $29,716 (Tingler), $80,305 (Shocker), and $34,559 (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.

Explanation / Answer

Compute current net income for Cawley Company.

Current Net Income of the comany is = $ 74,840

Compute net income by product line and in total for Cawley Company if the company discontinues the Stunner product line

Answer : net income for Cawley Company. $ 48,379

Answer : net income for Cawley Company. $ 48,379

Cawley Company if the company discontinues the Stunner product line.

Tingler Shocker Stunner Total Sales $304,500 $501,350 $198,140 $1,003,990 Variable expenses 146,750 200,700 137,120 $484,570 Contribution margin 157,750 300,650 61,020 $519,420 Fixed expenses 120,703 230,112 93,765 $444,580 Net income $  37,047 $  70,538 -32745 $74,840

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