# Nimoy Company makes three models of phasers. Information on the three products is given below. ...

## Question:

Nimoy Company makes three models of phasers. Information on the three products is given below.

 Stunner Double-Set Mega-Power Sales $299,450$499,090 $199,640 Variable expenses 142,390 200,940 139,390 Contribution margin 157,060 298,150 60,250 Fixed expenses 121,680 228,066 91,378 Net income$35,380 $70,084$(31,128)

Fixed expenses consist of $307,400 of common costs allocated to the three products based on relative sales, and additional fixed expenses of$29,461 (Stunner), $74,366 (Double-Set), and$29,897 (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.

Mr. Spock, an executive with the company, feels the Mega-Power line should be discontinued to increase the company's net income.

Instructions:

(a) Compute current net income for Nimoy Company.

(b) Compute net income by product line and in total for Nimoy Company if the company discontinues the Mega-Power product line.

## Discontinuing a Product-Line:

In order to calculate the financial effect that discontinuing a product will have, only the avoidable costs should be used. Common, allocated overhead costs are often not avoidable so it should be ignored.

a.) The current net income is:

Stunner Double-Set Mega-Power Total $74,336 Sales$299,450 $499,090$199,640 $998,180 Variable expenses 142,390 200,940 139,390 482,720 Contribution margin 157,060 298,150 60,250$515,460 Fixed expenses 121,680 228,066 91,378 441,124 Net income $35,380$70,084 $(31,128) b.) The net income will be: Stunner Double-Set Mega-Power Total$43,983 Sales $299,450$499,090 $0$798,540 Variable expenses 142,390 200,940 0 343,330 Contribution margin $157,060$298,150 0 $455,210 Fixed expenses - Direct 29,461 74,366 0 103,827 Product Margin$127,599 $223,784 0$351,383 Common fixed expenses 307,400 Net income