The following information is for X Company\'s two products - A and B: The compan

Question

The following information is for X Company's two products - A and B:

The company is considering dropping Product B because of the $40,500 loss. If X Company drops Product B, it will use the freed-up resources to increase sales of Product A by $14,000. If X Company drops Product B and increases sales of A, firm profits will change by

Product A Product B Sales $86,000 $85,000 Total contribution margin 35,260 34,000 Fixed costs:    Avoidable 22,000 44,500    Unavoidable    6,000    30,000 Profit $7,260 $-40,500

Explanation / Answer

Firm's Profit will increase by = 40500 + 14000*41% - 30000 = $ 16240

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