Clarington Company makes three models of phasers. Information on the three products is given below:

		Stunner		Double-Set			Mega-Power
Sales		$301,000		$451,500				$188,125
Variable expenses		150,000		203,500				145,000
Contribution margin		151,000		248,000				43,125
Fixed expenses		119,500		211,400				86,300
Net income		$31,500		$36,600				($43,175	)

Fixed expenses consist of $282,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $29,400 (Stunner), $75,900 (Double-Set), and $29,900 (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 discontinued. John Liu, an executive with the company, feels the Mega-Power line should be discontinued to increase the companys net income.

Calculate current net income for Clarington Company.

Current net income

$

Calculate net income by product line and in total for Clarington Company if the company discontinues the Mega-Power product line. (Hint: Allocate the $282,000 common costs to the two remaining product lines based on their relative sales.)

		Stunner	Double-Set	Total
Net income		$	$	$

Should Clarington eliminate the Mega-Power product line? Why or why not?

Clarington should notshould eliminate the Mega-Power product line. Elimination of the line would cause net income to risedrop.