$306,000 $494,000 $200,000 Variable expenses 154,900 203,300 135,200 Contribution margin 151,100 290,700 64,800 Fixed expenses 119,964 224,736 93,700 Net income $31,136 $65,964 $(28,900) Fixed expenses consist of $294,000 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 $34,900 (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 Cullumber Company. Net income $ (b) Compute net income by product line and in total for Cullumber Company if the company discontinues the Stunner product line. (Hint: Allocate the $294,000 common costs to the two remaining product lines based on their relative sales.) Tingler Net Income $ Shocker Net Income $ Total Net Income $ (c) Should Cullumber eliminate the Stunner product line? Why or why not? Net income would from $ to $ .
