Cawley Company makes three models of tasers. Information on the three products is given below.

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€™s net income.
Instructions
(a) Compute current net income for Cawley Company.
(b) Compute net income by product line and in total for Cawley Company if the company discontinues the Stunner product line.
(c) Should Cawley eliminate the Stunner product line? Why or whynot?

Transcribed Image Text:

Tingler Sales Variable expenses Contribution margin Fixed expenses Net income Shocker $300,000 $500,000 200,000 300,000 230,000 30,000 70,000 Stunner $200,000 145,000 55,000 95,000 $(40,000) 150,000 150,000 120,000