The following information is for X Company\'s two products, A and B: 7. If X Com

Question

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

7. If X Company drops Product B because it shows a loss, what will be the effect on firm profits? __________

8. Assume that if X Company drops Product B, it can use the vacant space to increase sales of Product A by $29,900, but $3,000 of additional fixed costs will be incurred. This use of the vacant space will result in an increase in X Company's profits of ___________

Product A Product B Revenue $89,000    $92,000    Total variable costs   53,400      48,760    Total contribution margin $35,600    $43,240    Total fixed costs    Avoidable 15,475    28,661       Unavoidable   14,285      23,449    Profit $5,840    $-8,870   

Explanation / Answer

7.

When X Company drops Product B because it shows a loss,the effect on firm profits will be as shown below:

8.

Assume that if X Company drops Product B, it can use the vacant space to increase sales of Product A by $29,900, but $3,000 of additional fixed costs will be incurred. This use of the vacant space will result in an increase in X Company's profits of

Product B Dropped Product A Product B Firm Revenue 89,000 89,000 Total variable costs 53400 53,400 Total contribution margin 35,600 0 35,600 Total fixed costs    Avoidable 15,475 15,475    Unavoidable 14,285 23,449 37,734 Profit 5,840 -23,449 -17,609

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