The following information is for X Company\'s two products, A and B: $28,242 of

Question

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

$28,242 of Product A's fixed costs are avoidable; $14,034 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 $35,500. Accompanying the sales increase will be a fixed cost increase of $3,000. If X Company drops Product A and increases Product B sales, what will be the effect on firm profits?

Product A Product B Revenue $93,000    $85,000    Total contribution margin 42,780    36,550    Total fixed costs 52,300    26,480    Profit $-9,520    $10,070   

Explanation / Answer

Effect on Profit by dropping Product A = -42780+28242= -14538 CM ratio of Product B = 36550/85000= 43% Effect on profit by increasing sales of product B = (35500*43%)-3000= $12265 Effect on firm profits if X Company drops Product A and increases Product B sales = -14538+12265= -2273 or decrease of $2273

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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