Question 1 Cawley Company makes three models of tasers. Information on the three
ID: 2547589 • Letter: Q
Question
Question 1 Cawley Company makes three models of tasers. Information on the three products is given below. Tingler Shocker Stunner Sales $295,400 $496,600 $201,000 Variable expenses 150,300 196,800 136,900 Contribution margin 145,100 299,800 64,100 Fixed expenses 121,116 233,081 96,503 Net income $23,984 $66,719 $(32,403) Fixed expenses consist of $307,300 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $29,700 (Tingler), $79,400 (Shocker), and $34,300 (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 $307,300 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. Current Net income:
b. Net income if Stunner is discontinued:
Cawley Company Tingler Shocker Stunner Total Sales 295,400 496,600 201,000 993,000 Less: Variable expenses 150,300 196,800 136,900 484,000 Contribution Margin 145,100 299,800 64,100 509,000 Less: Fixed expenses 91,416 153,681 62,203 307,300 Less: Other fixed expenses 29,700 79,400 34,300 143,400 Net Income 23,984 66,719 (32,403) 58,300Related Questions
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