AE7-16 (b)

Nichols Company makes three models of phasers. Information on the three products is given below.
A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€A?€StunnerA?€A?€A?€A?€A?€A?€A?€A?€A?€A?€ Double-SetA?€A?€A?€A?€A?€A?€A?€A?€A?€ Mega-Power
Sales ————————–$296,630———–$497,020 ———-$202,060
Variable expenses———– 154,290———– 197,130————- 143,040
Contribution margin——— 142,340———– 299,890 ————–59,020
Fixed expenses————— 121,342———- 229,516————— 92,081
Net income ——————-$20,998———– $70,374————– ($33,061)

Fixed expenses consist of $309,700 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $29,080 (Stunner), $74,926 (Double-Set), and $29,233 (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 be discontinued to increase the company’s net income.


Compute net income by product line and in total for Nichols Company if the company discontinues the Mega-Power product line. (Hint: Allocate the $309,700 common costs to the two remaining product lines based on their relative sales.) (Do not round intermediate calculations. Round answers to 0 decimal places, e.g. 125.)

Stunner Net Income $

Double-Set Net Income $

Total Net Income $