Norton Company makes three models of phasers.

Shocker Stunner Paralyzer

Sales $360,000 $540,000 $200,000

Variable expenses 160,000 200,000 130,000

Contribution margin 200,000 340,000 70,000

Fixed expenses 120,000 225,000 100,000

Net income $80,000 $115,000 ($30,000)

Fixed expenses consist of $400,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $10,000 (Shocker), $30,000 (Stunner), and $5,000 (Paralyzer). 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 Paralyzer line should be discontinued to increase the company's net income.

Instructions:

(a) Compute current net income for Norton Company.

(b)Compute net income by product line and in total for Norton Company if the company discontinues the Paralyzer product line. (Hint: Allocate the $400,000 common costs to the two remaining product lines based on their relative sales.)

(c) Should Norton eliminate the Paralyzer product line? Why or why not?