The following information is for X Company\'s two products, A and B: Assume that
ID: 2463473 • Letter: T
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 $6,780Explanation / Answer
Present Profit= -13,740 + 6,780 = (6,960.00) Statement showing computations for Product B Particulars Amount Revenue 85,000.00 Total Variable Costs' 48,450.00 Total Contribution Margin = Revenue - VC 36,550.00 Total fixed Costs Avoidable 15,778.00 Unavoidable 13,992.00 Profit= Cont - FC 6,780.00 CM ratio of Product B = 36,550/85000 0.43 VC Ratio = 48,450/85000 0.57 Revenue from Using Vacant Space 35,700.00 Total Variable Costs' = 35700*.57 20,349.00 Total Contribution Margin = Revenue - VC 15,351.00 Total fixed Costs Additional FC 3,200.00 Profit= Cont - FC 12,151.00 his use of the vacant space will result in an increase in X Company's profits of $12,151
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