Blue Company makes three models of tasers. Information on the three products is

Question

Blue Company makes three models of tasers. Information on the three products is given below.

Fixed expenses consist of $307,700 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $29,900 (Tingler), $79,000 (Shocker), and $34,800 (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’s net income.

(a)

Compute current net income for Blue Company.

(b)

Compute net income by product line and in total for Blue Company if the company discontinues the Stunner product line. (Hint: Allocate the $307,700 common costs to the two remaining product lines based on their relative sales.) (Round answers to the nearest whole dollar, e.g. 5,275.)

Tingler Shocker Stunner Sales $304,800 $501,100 $199,000 Variable expenses 151,000 207,800 138,000 Contribution margin 153,800 293,300 61,000 Fixed expenses 123,230 232,437 95,733 Net income $30,570 $60,863 $(34,733)

Explanation / Answer

a Current net income for Blue Company = 30570+60863-34733= 56700 b Tingler Shocker Total Contribution margin 153800 207800 361600 Traceable fixed expenses 29900 79000 108900 Common costs 116375 191325 307700 Net income 7525 -62525 -55000

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