The following information is for X Company\'s two products, A and B: $14,977 of
ID: 2453177 • Letter: T
Question
The following information is for X Company's two products, A and B:
$14,977 of Product A's fixed costs are avoidable; $29,675 of Product B's fixed costs are avoidable. X Company plans to drop Product B since it shows a loss and increase sales of Product A by $26,400. Accompanying the sales increase will be a fixed costs increase of $5,000. If X Company drops Product B and increases Product A sales, what will be the effect on firm profits?
Explanation / Answer
Existing Particulars Product A Product B Total Revenue 90,000.00 86,000.00 176,000.00 Variable Costs = Sales - Cont 53,100.00 43,860.00 96,960.00 Total contribution margin 36,900.00 42,140.00 79,040.00 Total fixed costs 27,230.00 55,990.00 83,220.00 Profit 9,670.00 (13,850.00) (4,180.00) Proposed Particulars Product A Product B Total Revenue 116,400.00 116,400.00 Variable Costs = Sales - Cont 68,676.00 68,676.00 Total contribution margin 47,724.00 47,724.00 Total fixed costs 32,230.00 26,315.00 58,545.00 Profit 15,494.00 (26,315.00) (10,821.00) Firms Profit wil decrease further by 6,641(10821-4180)
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