Question 1:

Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing.

		Current Machine			New Machine
Original purchase cost		$14,500			$25,300
Accumulated depreciation		$5,500			_
Estimated annual operating costs		$24,800			$19,700
Remaining useful life		5 years			5 years

If sold now, the current machine would have a salvage value of $9,800. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years. Should the current machine be replaced? (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Question 2:

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

		Tingler		Shocker		Stunner
Sales		$295,600		$495,300		$199,000
Variable expenses		151,700		207,900		138,200
Contribution margin		143,900		287,400		60,800
Fixed expenses		118,695		230,556		95,249
Net income		$25,205		$56,844		$(34,449)

Fixed expenses consist of $299,700 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $29,200 (Tingler), $80,600 (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 companys 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 $299,700 common costs to the two remaining product lines based on their relative sales.) (Round answers to the nearest whole dollar, e.g. 5,275.)