Kimmel Accounting, 6e FINANCIAL & MANAGERIAL CACC ian! Exercise 20-16 Cawley Com
ID: 2552405 • Letter: K
Question
Kimmel Accounting, 6e FINANCIAL & MANAGERIAL CACC ian! Exercise 20-16 Cawley Company makes three models oftaners. Information on he three products is given below Tingler Shacker Stunner 202,000 Varlable expenses 155,000 191,900 35,700 Contrbution magin 141,100 312,80066,300 16,22 227,69 3,303 24872 985,531 9027,003 296 100 504700 $ (Sthunner). The common costs wil be incurred regandless of how many models are produced. The other fxed expenses wud be eiminated a wat, an esecutive with the company feels the Stunner line should be discontinued to increase the company's net income Compute cument net income for Cawley Company Compute net ines based on their relative saes)(Round answers te the mearest whole delan, .g.$,275. income by product line and in total for Cawley Company f the compary osconcnues the unner product line tt Alocate the 294,400 common cots to the teo remaning prod Tingler Net Income 3 5 6 8 0Explanation / Answer
Cawley Company
Current net income for Cawley Company is $83,400
Tingler
Shocker
Stunner
Total
Sales
$296,100
$504,700
$202,000
$1,002,800
Variable expenses
$155,000
$191,900
$135,700
$482,600
Contribution margin
$141,100
$312,800
$66,300
$520,200
fixed expenses
$29,300
$79,100
$34,000
$142,400
Product income
$111,800
$233,700
$32,300
$377,800
Allocated fixed expenses
$86,928
$148,169
$59,303
$294,400
Net Income
$24,872
$85,531
($27,003)
$83,400
Allocation of common fixed expenses of $294,400 on the basis of relative sales is as follows,
Tingler = 296,100 x (294,400/1,002,800) = $86,928
Shocker = 504,700 x (294,400/1,002,800) = $148,169
Stunner = 202,000 x (294,400/1,002,800) = $59,303
Tingler net income
$2,944
Shocker net income
$48,156
Total net income
$51,100
Tingler
Shocker
Total
Sales
$296,100
$504,700
$800,800
Variable expenses
$155,000
$191,900
$346,900
Contribution margin
$141,100
$312,800
$453,900
fixed expenses
$29,300
$79,100
$108,400
Product income
$111,800
$233,700
$345,500
Allocated fixed expenses
$108,856
$185,544
$294,400
Net Income
$2,944
$48,156
$51,100
Discontinuation of the Stunner product line would decrease the net income of Tingler by $21,928 (24,872 – 2,944) and Shocker product line by $37,375 (85,531 – 48,156) and the total net income of the company by $32,300 (83,400 – 51,100). The discontinuation of the Stunner product line would result in Stunner’s product income of $32,300. Also, the burden of common fixed expenses on Tingler and Shocker product lines would increase, which results in decrease in their product net incomes as well as decrease in overall net income.
Also, since the Stunner product line earns contribution margin and product margin, the same should be continued as the product margin would absorb the common fixed expenses up to $32,300.
Allocation of common fixed costs to Tingler and Shocker on the basis of relative sales is as follows,
Tingler = 296,100 x (294,400/800,800) = $108,856
Shocker = 504,700 x (294,400/800,800) = $185,544
Tingler
Shocker
Stunner
Total
Sales
$296,100
$504,700
$202,000
$1,002,800
Variable expenses
$155,000
$191,900
$135,700
$482,600
Contribution margin
$141,100
$312,800
$66,300
$520,200
fixed expenses
$29,300
$79,100
$34,000
$142,400
Product income
$111,800
$233,700
$32,300
$377,800
Allocated fixed expenses
$86,928
$148,169
$59,303
$294,400
Net Income
$24,872
$85,531
($27,003)
$83,400
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