8 pt The following information is for X Company\'s two products, A and B Product
ID: 2509829 • Letter: 8
Question
8 pt The following information is for X Company's two products, A and B Product A Product B 91,000 $89, 37,310 29,860 87,45?8-12.160 Revenue Total contribution margin Total fixed costs Profit 15,229 of Product A's fisxed costs are avoidable; $27,200 of Product B's fixed costs are avoidable. X Company plans to drop Product B since it shows a loss and increase sales of Product A by $28,400. Accompanying the sales increase will be a fixed cost increase of $3,400. Ifx Company drops Product B and increases Product A sales, what will be the effect on firm peots 8 pf X Company currently makes 8,000 units of a component part each year, bat is considering buying it from a supplier for s00 each. The current anmual cost of making the part is $67,400 The supplier wants X Company to sign a contract for the next six years. If X Company buys the part, it will be able to sell the equipment that it currently uses to make the part for $14,000, bat the equipment will have no salvage value at the end of six years. Assuming a discount rate of present value of buying the part instead of making it? 4%, what is the nt 8. AO s10,170 BO 13,526 CO17,990 DO s23.27 E3823 O 42,32 med she enExplanation / Answer
Answer is A. -3716 Explanation: Incrementla analysis: Sales of Product A (91000+28400) 119,400 CM ratio (37310/91000*100) 41% Contribution earned 48954 Less: Fix ed cost of A (29860+3400) 33260 Less: Unavoidable cost of B (51320-27200) 24120 Net Loss -8426 Earlier loss -4710 Net Decrease in income -3716 Answer is E. $ 31823 Explanation: Saving in buying: Cost of buying (8000*8.00) 64000 Less: manufacturing cost 67400 Savngs in cost 3400 Aannuity factor for 6 years at 4% 5.2421 Present value of savings in cost 17823.14 Add: Equipment sold 14000 Net present value 31823.14
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