The following information is for X Company\'s two products, A and B: 1. If X Com

Question

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

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

2. Assume that if X Company drops Product B, it can use the vacant space to increase sales of Product A by $36,700, 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

Revenue Total variable costs Total contribution margin Total fixed costs Product A $93,000 52,080 $40,920 Product B $95,000 57,000 $38,000 12,660 12,660 $15,600 29,871 26,489 $-18,360 Unavoidable Profit

Explanation / Answer

1.

Company will incur a loss of $10,889

Using of vacant place will be increased the profit by $33,700

X Company Income Statement Revenue          93,000 Less: Total Variable Cost        -52,080 Total Contribution margin          40,920 Less: Total Fixed Cost Avoidable        -12,660 Unavoidable        -39,149 Profit / (Loss)        -10,889

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