Hawthorne Golf, the maker of a sought-after set of golf dubs, was formed in 2009.The selling price for each golf club set is $850, variable production costs are $450 per unit, fixed production costs are $1,015,000 per year, and fixed selling and administrative costs are $1,147,500 per year. Data below indicate net income for 2009—2011 under kill costing.

In 2009 and 2010, Milo Hawthorne, Jr., was the president of Hawthorne Golf. The board of directors was generally pleased with the company’s performance under his leadership—the company hit the break-even point in its first year of operation and had a modest profit in 2010. Milo quit at the end of 2010 and went on to buy a golf course and open a pro shop. His replacement, Daryl Selmer, was apparently not as successful as Milo. Daryl argued that he was improving the company by getting rid of excess inventory, but the board noted that the company showed a Si 42.500 loss in the first year of his leadership.

Required

a. Recalculate net income for all three years using variable costing.

b. Based on the limited information available, comment on the relative job performance of Milo and Daryl.

c. Note that under full costing, the company is showing a substantial loss in 2011. Based on the limited information available, does it appear that the company should get out of the golf club business?

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2009 2010 2011 Production (units) Sales (units) Production cost per unit (full cost) Sales Less cost of goods sold Gross margin Less selling and administrative expenses Net income (loss) 2,500 6,500 856 7,000 4,500 7,000 5,500 595 595 $5,525,000 $3,825,000 2,677,500 $4,675,000 3,272,500 1,399,500 1,005,000 1,147,500 -0- 1,147,500 $ 255,000 1,147,500 ($ 142,500)