Question - Nichols Company makes three models of phases. Information on the three products is given below.
|
|
Stunner
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Double-Set
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Mega-Power
|
|
Sales
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$300,000
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$500,000
|
$200,000
|
|
Variable expenses
|
150,000
|
200,000
|
140,000
|
|
Contribution margin
|
150,000
|
300,000
|
60,000
|
|
Fixed expense
|
120,000
|
225,000
|
90,000
|
|
Net income
|
$30,000
|
$75,000
|
$(30,000)
|
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 (Stunner), $7S,000 (Double-Set), and $30,000 (Mega-Power). 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.
Ralph Port, an executive with the company, feels the Mega-Power line should bc dis-continued to increase the company's net income.
Instructions
(a) Compute current net income for Nichols Company.
(b) Compute net income by product line and in total for Nichols Company if the cc party discontinues the Mega-Power product line.
(c) Should Nichols eliminate the Mega-Power product line? Why or why not?