Cawley Company makes three models of tasers. Information on the three products is given below.
Tingler Shocker Stunner
Sales $304,000 $496,000 $200,000
Variable expenses 149,800 193,300 139,400
Contribution margin 154,200 302,700 60,600
Fixed expenses 119,984 226,816 93,200
Net income $34,216 $75,884 $(32,600)
Fixed expenses consist of $296,000 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 $34,000 (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. James Watt, an executive with the company, feels the Stunner line should be discontinued to increase the company's net income.
(a) Compute current net income for Cawley Company. Net income $ ______77500
(b) Compute net income by product line and in total for Cawley Company if the company discontinues the Stunner product line. (Hint: Allocate the $296,000 common costs to the two remaining product lines based on their relative sales.)
Tingler Net Income _____$
Shocker Net Income _____$
Total Net Income ______$
(c) Should Cawley eliminate the Stunner product Iine
No_____
Why or why not?