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 A because it shows a loss, what will be the effect on firm profits?

8. Assume that if X Company drops Product A, it can use the vacant space to increase sales of Product B by $37,200, 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 $92,000    $92,000    Total variable costs   46,920      51,520    Total contribution margin $45,080    $40,480    Total fixed costs    Avoidable 33,984    14,000       Unavoidable   23,616      14,000    Profit $-12,520    $12,480   

Explanation / Answer

7) Firms profit will increase to $12,480 from loss ($40)

8)Initial Profit:                                                         $12,480

Increase in sales from vacant space: $37,200

Additiona Fixed Cost:                           (3000)         24,720

Increase in x company's profit                                $12,240

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