Question

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), $79,500 (Shocker), and $34,300 (Stunner). The common costs will be incurred regardless of how many models are produced. The direct fixed expenses would be eliminated if that model is phased out.

Answer 1

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Cawley Company makes three models of tasers. Information on the three products is given below.

Tingler Shocker Stunner

Sales $300,000 $500,000 $200,000

Variable expenses 150,000 200,000 145,000

Contribution margin 150,000 300,000 55,000

Fixed expenses 120,000 230,000 95,000

Net income $ 30,000 $70,000 $(40,000)

Fixed expenses consist of $300,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $30,000 (Tingler), $80,000 (Shocker), and $35,000 (Stunner). 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. James Watt, an executive with the company, feels the Stunner line should be discontinued to increase the company.

1. Compute current net income for Crawley company

2. Compute net income after dropping the stunner line model

Answer:

1. Current net income = $60,000

2. net income = $40,000

Step-by-step explanation:

See the attached file for the calculation

Answer 2

Answer and explanation:

Attached is a comprehensive solution

in a well formatted excel table