The following information is for X Company\'s two products, A and B: 7. If X Com
ID: 2463367 • Letter: T
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 $37,400, but $4,200 of additional fixed costs will be incurred. This use of the vacant space will result in an increase in X Company's profits of
Explanation / Answer
Answer 7
Firms Profit will increase by -8435
Product A
Product B
Total
Revenue
90000
88000
178000
Total variable costs
53100
50160
103260
Total contribution margin
36900
37840
74740
Total fixed costs
Avoidable
15971
29405
45376
Unavoidable
12549
29405
41954
Profit
8380
-20970
-12590
On drop product B
Product A
Revenue
90000
Total variable costs
53100
Total contribution margin
36900
Total fixed costs
Avoidable
15971
Unavoidable
41954
Profit
-21025
Answer 8
Increase in companies profit by 11134.
Product A
Additional
Total
Revenue
90000
37400
127400
Total variable costs
53100
22066
75166
Total contribution margin
36900
15334
52234
Total fixed costs
Avoidable
15971
4200
20171
Unavoidable
41954
0
41954
Profit
-21025
11134
-9891
Product A
Product B
Total
Revenue
90000
88000
178000
Total variable costs
53100
50160
103260
Total contribution margin
36900
37840
74740
Total fixed costs
Avoidable
15971
29405
45376
Unavoidable
12549
29405
41954
Profit
8380
-20970
-12590
On drop product B
Product A
Revenue
90000
Total variable costs
53100
Total contribution margin
36900
Total fixed costs
Avoidable
15971
Unavoidable
41954
Profit
-21025
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