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 and explanation:

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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 margin150,000  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

1. Current net income = $60,000

2. net income  = $40,000

Explanation:

See the attached file for the calculation

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