Cawley Company makes three models of tasers. Information on the three products i
ID: 2627850 • Letter: C
Question
Cawley Company makes three models of tasers. Information on the three products is given as follows.
Tingler ,Shocker, Stunner
Sales $300,000, $500,000 ,$200,000
Variable expenses 150,000 ,200,000 ,145,000
Contribution margin 150,000, 300,000, 55,000
Fixed expenses 120,000,230,000 ,95,000
Net income $30,000,$70,000 ,$(40,000)
Fixed expenses consist of $300,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $30,000 (Tingler), $80,000 (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
Explanation / Answer
(A)Compute current net income for Cawley Company.
Tingle
shocker
stunner
Net income
Sales
$300,000,
, $500,000
$,$200,000
$1000,000
Variable expenses
150,000,
200,000,
145,000,
495000
Contribution margin
150,000,
300,000,
55 000
505000
Fixed expenses-common
90,000,
150 000
60 000
300000
Fixed expenses-unique
30 000
80 000
35 000
145000
Net income
30 000
70 000
40 000
60 000
(B) 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.)
Tingle
shocker
stunner
Net income
Sales
$300,000,
, $500,000
0
$800,000
Variable expenses
150,000,
200,000,
0
395 000
Contribution margin
150,000,
300,000,
0
45000
Fixed expenses-common
112500
187 000
0
300000
Fixed expenses-unique
30 000
80 000
0
110000
Net income
7500
32500
0
40 000
(C) Should Cawley eliminate the Stunner product line? Why or why not
No. Crawley should not eliminate the Stunner product line. Although the Stunner line is losing money, itstill results in an overall company gain of $20,000
Tingle
shocker
stunner
Net income
Sales
$300,000,
, $500,000
$,$200,000
$1000,000
Variable expenses
150,000,
200,000,
145,000,
495000
Contribution margin
150,000,
300,000,
55 000
505000
Fixed expenses-common
90,000,
150 000
60 000
300000
Fixed expenses-unique
30 000
80 000
35 000
145000
Net income
30 000
70 000
40 000
60 000
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