(Solution) - Newton Company makes three models of phasers Information on the -(2025 Original AI-Free Solution)

Paper Details

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

Fixed expenses consist of $300,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $30,000 (Stunner), $75,000 (Double-Set), and $30,000 (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. Tim Hunt, 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 Newton Company.
(b) Compute net income by product line and in total for Newton Company if the company discontinues the Mega-Power product line. (Hint: Allocate the $300,000 common costs to the two remaining product lines based on their relative sales.)
(c) Should Newton eliminate the Mega-Power product line? Why or whynot?