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Cawley Company

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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 margin  150,000  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’s net income.

(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. (Hint: Allocate the $300,000 common costs to
the two remaining product lines based on their relative sales.)

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