The following information Is for X Company\'s two products - A and B: $23,862 of

Question

The following information Is for X Company's two products - A and B: $23,862 of Product A's fixed costs are directly related to Product A and avoidable: $44,874 of Product B's fixed costs are directly related to Product B and avoidable. The remaining fixed costs are allocated costs and unavoidable. X Company is considering dropping Product B. If it does, it can use the freed-up resources to increase sales of Product A by $18,700. If X Company drops Product B and increases Product A sales, firm profits will change by

Explanation / Answer

Firm's profit/loss before change : 35760 + 46060 - 29100 - 55400 = -2680

After Change = Sales at current level = 35670/.41 = 89175

Sales after Increase = 89175 + 18700 = 107875

Contribution at Revised Level = 107875*.41 = 44228.75 or = 44229

Profit/Loss at Revised Level = 44229 - 29100 (A's fixed Cost) - (55400 - 44874)

(B's Unavoidable Fixed Cost)=4603

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