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

Profit from B = 46060 -55400 = ($9340) Profit increased by A = 18700 x 0.41 = $7667 and Savings on fixed costs directly related to B = $44874 Hence total increase/savings = $7667 + $44874 = $52541 Hence firms profits will be changed by $52541 -(-$9340) = $61881

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