Function: SUM; Formula: Add, Divide, Subtract, Multiply; Cell Referencing

Using Excel For Incremental Analysis for Elimination of a Product Line

PROBLEM

Cawley Company makes three models of tasers. Information on the three products is eiven below.

$\backslash$table$[[,$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,S$,30,000,5.,70,000,5,(40,000)]]$

Fixed expenses consist of common costs allocated to the three products based on relative sales, as well as direct fixed expenses unique to each model. The common costs will be incurred regardless of how many models are produced. The direct fixed expenses would be eliminated if that model is phased out. These fixed expenses are presented m$-$

Allocated fixed common costs

Direct fixed expenses:

Tingler

Shocker

Stunner

James Watt, an executive with the company, feels the Stunner line should be discontinued to increase the company's net income.

Student Work Area

Required: Provide input into cells shaded in yellow in this template. Use mathematical formulas with cell references to the Problem or work area as indicated. Use the SUM function with cell references to add amounts as indicated.

a$.$ Compute current net income for Cawley Company.

Current net income $$60,{000}^7$

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.$)$

c$.$ Should Cawley eliminate the Stunner product Problem area.

Cawley Common cost allocation

Sales

Variable expenses Contribution margin Fixed expenses

$30,000$

$80,000$

$35,000$

of fixed expenses.