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

Stunner Double-Set Mega-Power

Sales $302,000 $453,000 $188,750

Variable expenses 147,500 204,000 141,000

Contribution margin 154,500 249,000 47,750

Fixed expenses 110,000 224,500 87,400

Net income $44,500 $24,500 ($39,650)

Fixed expenses consist of $287,500of common costs allocated to the three products based on relative sales, and additional fixed expenses of $29,800(Stunner), $74,700(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 company's net income.

Calculate current net income for Clarington Company.

Current net income

$ ?

Question Part Score

--/2

Calculate net income by product line and in total for Clarington Company if the company discontinues the Mega-Power product line. (Hint:Allocate the $287,500common costs to the two remaining product lines based on their relative sales.)

Stunner Double-Set Total

Net income $? $ ? $?

Question Part Score

--/6

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

Clarington

should OR

should not

eliminate the Mega-Power product line.Elimination of the line would cause net income to

rise OR

drop

.