Ivanhoe Company makes three models of tasers. Information on the three products is given below.     Tingler   Shocker   Stunner   Sales   $296,000   $504,000   $200,000   Variable expenses   151,100   203,300   138,600   Contribution margin   144,900   300,700   61,400   Fixed expenses   116,616   228,184   93,900   Net income   $28,284   $72,516   $(32,500)   Fixed expenses consist of $296,000 of common costs allocated to the three products based on relative sales, as well as direct fixed expenses unique to each model of $29,000 (Tingler), $79,000 (Shocker), and $34,700 (Stunner). 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. James Watt, an executive with the company, feels the Stunner line should be discontinued to increase the company’s net income. (a) Compute current net income for Ivanhoe Company. Net income   $   (b) Compute net income by product line and in total for Ivanhoe Company if the company discontinues the Stunner product line. (Hint: Allocate the $296,000 common costs to the two remaining product lines based on their relative sales.) Tingler Net Income   $   Shocker Net Income   $   Total Net Income   $   (c) Should Ivanhoe eliminate the Stunner product line? Yes/No                                Net income would increase/decrease from $         to $

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Ivanhoe Company makes three models of tasers. Information on the three products is given below.

    Tingler   Shocker   Stunner  
Sales   $296,000   $504,000   $200,000  
Variable expenses   151,100   203,300   138,600  
Contribution margin   144,900   300,700   61,400  
Fixed expenses   116,616   228,184   93,900  
Net income   $28,284   $72,516   $(32,500)  


Fixed expenses consist of $296,000 of common costs allocated to the three products based on relative sales, as well as direct fixed expenses unique to each model of $29,000 (Tingler), $79,000 (Shocker), and $34,700 (Stunner). 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.

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

(a)

Compute current net income for Ivanhoe Company.

Net income   $  


(b)

Compute net income by product line and in total for Ivanhoe Company if the company discontinues the Stunner product line. (Hint: Allocate the $296,000 common costs to the two remaining product lines based on their relative sales.)

Tingler Net Income   $  
Shocker Net Income   $  
Total Net Income   $  


(c)

Should Ivanhoe eliminate the Stunner product line?

Yes/No                               

Net income would increase/decrease from $         to $            .
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