Nichols Company makes three models of phasers. 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 (Stunner), $75,000 (Double-Set), and $30,000 (Mega-Power). 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.
Ralph Port, an executive with the company, feels the Mega-Power line should be discontinued to increase the company's net income.

Instructions
(a) Compute current net income for Nichols Company.
(b) Compute net income by product line and in total for Nichols Company if the company discontinues the Mega-Power product line.
(c) Should Nichols eliminate the Mega-Power product line? Why or why not?

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Sales Variable expenses Contribution margin Fixed expenses Net income Stunner $300,000 150,000 150,000 120,000 30,000 Double-Set 500,000 200,000 300,000 225,000 75,000 Mega-Power $200,000 140,000 60,000 90,000 (30,000)