Instructions

a) Compute current income,

b) Compute net income by product line and in total for the company if the company discontinues the Stunner product line. (Hint: allocate the $300,000 common costs to the two remaining products based on their relative sales.)

c) Should the company eliminate the Stunner product line? Why or why not.

Fixed expenses consist of $300,000 of common costs allocated to the three products based on relative sales, as well as direct fixed expenses unique to each model of $30,000 (Tingler), $80,000 (Shocker), and $35,000 (Stunner). The common costs will be incurred regardless how many models are produced. The direct fixed expenses would be eliminated if that model is phased out. Mr. Watt, an executive with the company, feels the Stunner line should be discontinued to increase the company's net income. Instructions a) Compute current income, b) Compute net income by product line and in total for the company if the company discontinues the Stunner product line. (Hint: allocate the $300,000 commen costs to the two remaining products based on their relative sales.)