Key Co. makes three models of lasers. 5 8 Sales Variable expenses Contribution margin Fixed expenses Net Income Blaster $430,000 170,000 260,000 125,000 $135,000 Fire $570,000 210,000 360,000 225,000 $135,000 Monster $220,000 150,000 70,000 100,000 ($30,000) 8 19 110 11 12 13 14 15 16 17 18 19 20 21 Fixed expenses consist of $400,000 of common costs allocated to the three products based on relative sales, and additional foxed expenses of $15,000 (Blaster), $30,000 (Fire), and $5,000 (Monster). 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. Rick Manley, an executive with the company, feels the Monster line should be discontinued to increase the company's net Income 2 Instructions: 22 23 24 (a) Compute current net income for Key Co. 26 (b) Compute net income by product line and in total for Key Co. if the company discontinues the Monster product line. (Hint: Allocate the $400,000 common costs to the two remaining product lines based on their relative sales.) 27 28 29 30 31 (c) Should Key Co. eliminate the Monster product line? Why or why not? 1 Compute current net Income for Key Co. 1 (a 2 2 3 NE 3 Blaster Fire Total ORA 40 5 15 6 7 6 7 CO No DOO 8 Sales Variable expenses Contribution margin Fixed expenses Net Income 18 9 10 10 11 12 13 11 12 13 14 14(c) 15 ch 15 16 17 16 17 18 18 19 20 19 20