Question 5 Cawley Company makes three models of tasers. Information on the three products is given as follows. Tingler Shocker Stunner Sales revenue $300,000 $500,000 $200,000 Variable expenses 150,000 200,000 145,000 Contribution $150,000 $300,000 $ 55,000 margin 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 additional 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's net income. Instructions (a) Compute current net income for Cawley Company. (b) Compute net income by product line and in total for Cawley Company if the company discontinues the Stunner product line. (c) Should Cawley eliminate the Stunner product line? Explain.

Question 5 Cawley Company makes three models of tasers. Information on the three products is given as follows. Tingler Shocker Stunner Sales revenue $300,000 $500,000 $200,000 Variable expenses 150,000 200,000 145,000 Contribution $150,000 $300,000 $ 55,000 margin 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 additional 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's net income. Instructions (a) Compute current net income for Cawley Company. (b) Compute net income by product line and in total for Cawley Company if the company discontinues the Stunner product line. (c) Should Cawley eliminate the Stunner product line? Explain.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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