Question

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

Answer 1

Answer:

Particulars     Tingler        Shocker              Stunner          Total

Sales  $304,000.00 $496,000.00 $200,000.00 $1,000,000.00

Variable expense $149,800.00 $193,300.00 $139,400.00 $482,500.00

Contribution Margin (Sales - Variable

expenses) $154,200.00 $302,700.00 $60,600.00 $517,500.00

Fixed expenses $119,984.00 $226,816.00 $93,200.00 $440,000.00

Net Income (Contribution Margin - Fixed

expenses) $34,216.00 $75,884.00 -$32,600.00 $77,500.00

Computation of net income by product line and in total for Cawley Company if the company discontinues the Stunner product line

Particulars              Tingler              Shocker                 Total

Sales                  $304,000.00      $496,000.00           $800,000.00

Variable expense $149,800.00         $193,300.00          $343,100.00

Contribution Margin

(Sales - Variable expenses) $154,200.00 $302,700.00 $456,900.00

Fixed expenses:    

Common Fixed expenses

(296000*304000/800000)

(296000*496000/800000) $112,480.00 $183,520.00 $296,000.00

Direct fixed expenses $30,000.00 $80,000.00 $110,000.00

Total Fixed expenses $142,480.00 $263,520.00 $406,000.00

Net Income (Contribution Margin

- Fixed expenses)           $11,720.00 $39,180.00 $50,900.00

Tingler Net Income $11,720.00

Shocker Net Income $39,180.00

Total Net Income $50,900.00

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Should Cawley eliminate the stunner produc tline?

NO

Net income would decrease from $ 77,500 to $ 50900

Explanation: