Clarington Company makes three models of phasers. Information on the three products is given below: Fixed expenses
Question:
Clarington Company makes three models of phasers. Information on the three products is given below:
Fixed expenses consist of $300,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $35,000 (Stunner), $70,000 (Double-Set), and $40,000 (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.
John Liu, an executive with the company, feels the Mega-Power line should be discontinued to increase the company's net income.
Instructions
(a) Calculate current net income for Clarington Company.
(b) Calculate net income by product line and in total for Clarington Company if the company discontinues the Mega-Power product line.
(c) Should Clarington eliminate the Mega-Power product line? Why or why not?
Step by Step Answer:
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly