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

Question

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

Assume that if X Company drops Product A, it can use the vacant space to increase sales of Product B by $35,700, but $3,200 of additional fixed costs will be incurred. This use of the vacant space will result in an increase in X Company's profits of what?

Product A Product B Revenue $90,000    $85,000    Total variable costs   52,200      48,450    Total contribution margin $37,800    $36,550    Total fixed costs    Avoidable 27,832    15,778       Unavoidable   23,708      13,992    Profit $-13,740    $6,780

Explanation / Answer

X Company All Amounts in $ Existing Total Profits of the Company = -6960 $ If Product A is dropped Standalone Profits of Product B 6780 Additional Sales of Product B 35700 Fixed Costs incurred 3200 32500 Thus, if Product A is dropped, the Net Profits of the Company will increase by $ 32,500.

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