The following information is for X Company\'s two products, A and B: Product A P
ID: 2463803 • Letter: T
Question
The following information is for X Company's two products, A and B: Product A Product B Revenue $86,000 $87,000 Total variable costs 49,020 50,460 Total contribution $36,980 $36,540 margin Total fixed costs Avoidable 13,588 32,580 Unavoidable 12.542 22.640 Profit $10,850 $minus18,680 If X Company drops Product B because it shows a loss, what will be the effect on firm profits? $ minus 3,960 Previous Tries Assume that if X Company drops Product B, it can use the vacant space to increase sales of Product A by $36,400, 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 28728 Tries 2/3 Previous TriesExplanation / Answer
Computation of Existing overall Profit
Particulars
Product A
%
Product B
%
Total
Revenue
86,000
100
87,000
100
173,000
Total Variable Cost
49,020
57
50,460
58
99,480
Total Contribution Margin
36,980
43
36,540
42
73,520
Total Fixed Cost
Avoidable
13,588
32,580
46,168
Unavoidable
12,542
22,640
35,182
Total Fixed Cost
26,130
55,220
81,350
Total Proft
10,850
(18,680)
(7,830)
Computation of overall Profit if B is Dropped
Particulars
Product A
%
Product B
%
Total
Revenue
86,000
100
86,000
Total Variable Cost
49,020
57
49,020
Total Contribution Margin
36,980
43
-
36,980
Total Fixed Cost
Avoidable
13,588
13,588
Unavoidable
12,542
22,640
35,182
Total Fixed Cost
26,130
22,640
48,770
Total Proft
10,850
(22,640)
(11,790)
If B is Dropped Loss will increase by $3,960($11,790-$7,830)
Computation of overall Profit if B is Dropped and A sales is increased
Particulars
Product A
%
Product B
%
Total
Revenue
122,400
100
122,400
Total Variable Cost
69,768
57
69,768
Total Contribution Margin
52,632
43
-
52,632
Total Fixed Cost
Avoidable
13,588
13,588
Unavoidable
12,542
22,640
35,182
Additional Fixed Cost
4,200
Total Fixed Cost
30,330
22,640
52,970
Total Proft
22,302
(22,640)
(338)
Overall Loss is $338
Note: If sales increases accordingly variable cost also increases
Computation of Existing overall Profit
Particulars
Product A
%
Product B
%
Total
Revenue
86,000
100
87,000
100
173,000
Total Variable Cost
49,020
57
50,460
58
99,480
Total Contribution Margin
36,980
43
36,540
42
73,520
Total Fixed Cost
Avoidable
13,588
32,580
46,168
Unavoidable
12,542
22,640
35,182
Total Fixed Cost
26,130
55,220
81,350
Total Proft
10,850
(18,680)
(7,830)
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