The following information is for X Company\'s two products, A and B: $18,286 of

Question

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

$18,286 of Product A's fixed costs are avoidable; $28,682 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 $36,800. Accompanying the sales increase will be a fixed cost increase of $3,600. If X Company drops Product B and increases Product A sales, what will be the effect on firm profits?

Product A Product B Revenue $87,000    $87,000    Total contribution margin 35,670    40,890    Total fixed costs 32,080    50,320    Profit $3,590    $-9,430   

Explanation / Answer

Contribution margin for product A = $35,670 /$87,000 = 0.41

Profit/ (Loss) in product B = 50,320 - $28,682 = ($21,688)
Profit/ (Loss) in product A =  $36,800 X .41 - $3,600 = $11,488

Increase (Decrease) in profit = $11,488 + ($21,688) - ($9,430) = ($770)

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.