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 $91,000 37,310 52,400 8-15,090 $88,000 37,840 24,950 $12,890 Revenue Total contribution margin Total fixed costs Profit $31,440 of Product A's fixed costs are avoidable; $13,972 of Product B's fixed costs are avoidable. X Company plans to drop Product A since it shows a loss and increase sales of Product B by $27,900. Accompanying the sales increase will be a fixed cost increase of $4,400. If X Company drops Product A and increases Product B sales, what will be the effect on firm profits? 7. AO S1,727 BO $2,297 CO $3,055 DO $4,063 EO $5,404 FO $7,187

Explanation / Answer

Answer

If X Company drops Product B because it shows a loss, the effect on firm profit:

= (contribution margin ratio * increase in sales) - additional fixed cost

=(41%* $27800) - $4400

=$11398 - $4400

=$6998

Will increase profit by $ 6998

W.n.

Contribution margin ratio=37310/91000 =41%

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