Nimoy Company makes three models of phasers. Information on the three products i
ID: 2475287 • Letter: N
Question
Nimoy Company makes three models of phasers. Information on the three products is given below. Fixed expenses consist of $307,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $25,690 (Stunner), $75,180 (Double-Set), and $30,230 (Mega-Power). 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. Mr, Spock, an executive with the company, feels the Mega-Power line should be discontinued to increase the company's net income. (a) Compute current net income for Nimoy Company. (b) Compute net income by product line and in total for Nimoy Company if the company discontinues the Mega-Power product line. (c) Should Nimoy eliminate the Mega-Power product line?Explanation / Answer
a) Current net income for Nimoy Company = $ 52,110 + $ 82,320 - $ 28,230
= $ 106,200
b) Net income by product line and in total for Nimoy Company if the company discontinues the Mega-Power product line
Stunner Net Income Calculation :
(312,000 / 832,000) x 307,000 = 115,125 Portion of shared fixed costs
25,690 Extra Fixed Costs
142,100 Variable Costs
312,000 - 115,125 - 25,690 - 142,100 = $29,085 Net Income
Double-Set Net Income Calculation :
(520,000 / 832,000) x 307,000 = 191,875 Portion of shared fixed costs
75,180 Extra Fixed Costs
209,000 Variable Costs
520,000 - 191,875 - 75,180 - 209,000 = $43,945 Net Income
Total Net Income (Stunner & Double Set)
29,085 + 43,945 = $73,030
c) Net Income before elimination of Mega-Power = $ 106,200
Net Income after elimination of Mega - Power = $ 73,030
Since Net income before elimination is more than after elimination, it is advisable to Nimoy company to continue with Mega - Power.
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