FULL SCREEN PRINTER VERSION BACK Exercise 21-16 Cawley Company makes three model
ID: 2540178 • Letter: F
Question
FULL SCREEN PRINTER VERSION BACK Exercise 21-16 Cawley Company makes three models of tasers. Information on the three products is given below. Tingler Shocker Stunner $300,000 $500,000 $200,000 Sales Variable expenses 150,000 190,000 135,000 Contribution margin 150,000 310,000 65,000 Fixed expenses Net income 132,000 220,000 93,000 $18,000 $90,000 $(28,000) Fixed expenses consist of $290,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $45,000 (Tingler), $75,000 (Shocker), and $35,000 (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. Compute current net income for Cawley Company. Net income Compute net income by product line and in total for Cawley Company if the company discontinues the Stunner product line. (Hint: Allocate the $290,000 te costs to the two lines based on their relative sales.) (RoundExplanation / Answer
income statement
Tingler
Shocker
stunner
total
sales
300000
500000
200000
1000000
variable cost
150000
190000
135000
475000
contribution margin
150000
310000
65000
525000
fixed expenses
132000
220000
93000
445000
net income
18000
90000
-28000
80000
1-
net income for cawley company
80000
tingler
shocker
total
2-
sales
300000
500000
800000
variable cost
150000
190000
340000
contribution margin
150000
310000
460000
fixed expenses
108750
256250
365000
net income
41250
53750
95000
tingler net income
41250
shocker net income
53750
total net income
95000
Allocation of fixed cost to tingler
common cost on the basis of sales
(290000/800000)*300000
108750
additional fixed cost
45000
total fixed cost to tingler
153750
Allocation of fixed cost to shocker
common cost on the basis of sales
(290000/800000)*500000
181250
additional fixed cost
75000
total fixed cost to tingler
256250
income statement
Tingler
Shocker
stunner
total
sales
300000
500000
200000
1000000
variable cost
150000
190000
135000
475000
contribution margin
150000
310000
65000
525000
fixed expenses
132000
220000
93000
445000
net income
18000
90000
-28000
80000
1-
net income for cawley company
80000
tingler
shocker
total
2-
sales
300000
500000
800000
variable cost
150000
190000
340000
contribution margin
150000
310000
460000
fixed expenses
108750
256250
365000
net income
41250
53750
95000
tingler net income
41250
shocker net income
53750
total net income
95000
Allocation of fixed cost to tingler
common cost on the basis of sales
(290000/800000)*300000
108750
additional fixed cost
45000
total fixed cost to tingler
153750
Allocation of fixed cost to shocker
common cost on the basis of sales
(290000/800000)*500000
181250
additional fixed cost
75000
total fixed cost to tingler
256250
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