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

Question

8 pt The following information is for X Company's two products, A and B: Product A Product B Revenue Total contribution margin Total fixed costs Profit $88,000 35,200 50,910 8-15,710 $89,000 39,160 24,650 $14,510 s27,491 of Product A's fixed costs are avoidable: $14,297 of Product B's fixed costs are aoidable. X Company plans to drop Product A since it shows a loss and increase sales of Product B by $35,000. Accompanying the sales increase will be a fixed cost increase of $4,600. If X Company drops Product A and increases Product B sales, what will be the effect on firm profits? 7. AO sì,650 BO $1,930 ?? $2,258 DO $2.642 EO $3,091 FO$3,617 8 pt X Company currently makes 7,000 units of a component part each year, but is considering buying it from a supplier fo 9.00 each. The current annual cost of making the part is next five years. $20,000, but the equipment w net present value of buying the part instead of making it? $67,300. The supplier wants X Company to sign a contract for the If X Company buys the part, it will be able to sell the equipment that it currently uses to make the part for ill have no salvage value at the end of five years. Assuming a discount rate of 4%, what is the 8. A?$29,431 BO s39,144 cO s52,061 DO s6924 i EO s92,00i FO s122,481

Explanation / Answer

Answer is E $3091 Explanation: Incremental analysis: Sales of Product B (89000+35000) 124000 CM ratio (39160/89000*1000 44% Contribution earned 54560 Less: Fixed cost of B (24650+4600) 29250 Less: Unavoidable Cost of Product A 23419 Net Icnome 1891 Earlier Net loss (-15710+14510) -1200 Incremental income 3091 Answer is $ 39144 Explanation: Annual savings in cost when buying: Cost of buying 63000 Less: Cost of manufacturiing 67300 net savings annual 4300 Annuity factor for 5 years at 4% 4.4518 Present value of savings 19142.74 Add: Equipment sold presently 20000 Net Present value 39142.74

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