Question 1 Cawley Company makes three models of tasers. Information on the three
ID: 2546019 • Letter: Q
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Question 1 Cawley Company makes three models of tasers. Information on the three products is given below. Tingler Shocker Stunner Sales $304,500 $496,700 $195,700 Variable expenses 154,900 203,300 135,200 Contribution margin 149,600 293,400 60,500 Fixed expenses 119,924 226,183 92,693 Net income $29,676 $67,217 $(32,193) Fixed expenses consist of $294,400 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $30,000 (Tingler), $79,500 (Shocker), and $34,900 (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 $294,400 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 $
Explanation / Answer
a.
b.
Total sales = Tingler sales + Shocker sales
= 304,500 + 496,700
= 801,200
Tingler sales as a percentage of total sales = 304,500 / 801,200 = 38%
Shocker sales as a percentage of total sales = 496,700 / 801,200 = 62%
Tingler fixed costs = 30,000 + (294,400*38%) = 141,872
Shocker fixed costs = 79,500 + (294,400*62%) = 262,028
Tingler Shocker Stunner Company Sales 304,500 496,700 195,700 996,900 Variable expenses 154,900 203,300 135,200 493,400 Contribution margin 149,600 293,400 60,500 503,500 Fixed expenses 119,924 226,183 92,693 438,800 Net income 29,676 67,217 (32,193) 64,700
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