Question
Cawley Company makes three models of tasers. Information on the three products is given below. Tingler Shocker Stunner Sales $300,000 $500,000 $200,000 Variable expenses 150,000
Cawley Company makes three models of tasers. Information on the three products is given below.
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 |
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