Hawthorne Golf, the maker of a sought-after set of golf clubs, was formed in 2015. The selling price for each golf club set is $1,700, variable production costs are $900 per unit, fixed production costs are $2,100,000 per year, and fixed selling and administrative costs are $2,250,000 per year. Data below indicate net income for 2018–2020 under full costing. 

In 2018 and 2019, Milo Hawthorne, Jr., was the president of Hawthorne Golf. The board of directors was generally pleased with the company’s performance under his leadership—the company hit the break-even point in its first year of operation and had a modest profit in 2019. Milo quit at the end of 2019 and went on to buy a golf course and open a pro shop. His replacement, Daryl Selmer, was apparently not as successful as Milo. Daryl argued that he was improving the company by getting rid of excess inventory, but the board noted that the company showed a $350,000 loss in the first year of his leadership. 

Required 

a. Recalculate net income for all three years using variable costing. 

b. Based on the limited information available, comment on the relative job performance of Milo and Daryl. 

c. Note that under full costing, the company is showing a substantial loss in 2020. Based on the limited information available, does it appear that the company should get out of the golf club business?

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2018 2019 2020 Production (units) 7,000 7,000 2,500 Sales (units) 4,500 5,500 6,500 Production cost per unit (full cost) $ 1,200 $ 1,200 $ 1,740 Sales $7,650,000 $9,350,000 $11,050,000 Less cost of goods sold 5,400,000 6,600,000 9,150,000 Gross margin 2,250,000 2,750,000 1,900,000 Less selling and administrative expenses 2,250,000 2,250,000 2,250,000 Net income (loss) $ -0- $ 500,000 ($ 350,000)