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

Question

The following information is for X Company's two products, A and B: Product A Product B Revenue $92,000 $86,000 Total variable costs 54,280 43,860 Total contribution margin $37,720 $42,140 Total fixed costs Avoidable 16,677 27,326 Unavoidable 13,103 26,254 Profit $7,940 $-11,440 7. If X Company drops Product B because it shows a loss, what will be the effect on firm profits? Incorrect. Tries 2/3 Previous Tries 8. Assume that if X Company drops Product B, it can use the vacant space to increase sales of Product A by $36,400, but $4,000 of additional fixed costs will be incurred. This use of the vacant space will result in an increase in X Company's profits of? Please help!

Explanation / Answer

Solution. X company's profit will increase by $32,410 (40,350-7,940)

Explaination is given below:

Calculation of increase in profit of X company If X company drops Product B and increase sale of Product A by $36,400 with additional fixed costs

Now the X company will earn profit     = $40,350

Less: Before it the X company was earning profit = ($7,940)

Increase in Proftit = 32,410

Particular Amount ($) Sales after increasing with 36,400 128,400 (92,000+36,400) Less : Total variable cost (54,280) Contribution 74,120 Less : Fixed Cost - Avoidabe (16,667) - Unavoidable (13,103) - Additionally fixed cost (4,000) Profit 40,350

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