The following information is for X Company\'s two products - A and B: Particular
ID: 2568906 • Letter: T
Question
The following information is for X Company's two products - A and B:
Particulars Product A Product B
Revenue $91,000 $95,000
Variable Costs $54,000 $55,100
Total Contribution Margin $36,400 $39,000
Fixed Costs $27,590 $50,360
Profit $8,810 $-10,460
$3,587 of Product A's fixed costs are common costs that are allocated to Product A; $10,072 of Product B's fixed costs are common and allocated to Product B. The remaining fixed costs are directly related to A and B.
1. If X Company drops Product B and does nothing with the freed-up resources, profits will change by _________?
2. Assume that if X Company drops Product B, it can use the freed-up resources to increase sales of Product A by $16,700, but there will be additional fixed costs of $2,200. As a result, X Company's profits will increase by __________?
(Please answer step by step).
Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up Statementshowing Computations Paticulars Product A Product B Total 1) Sales 91,000.00 - 91,000.00 Less Variable Expenses (54,600.00) - (54,600.00) Contribution Margin 36,400.00 - 36,400.00 Fixed cost (27,590.00) 10,072.00 (17,518.00) Net operating income 8,810.00 (10,072.00) (1,262.00) Existing profit = 8810 - 10460 (1,650.00) Profits will increase by -1,262 - (-1650) 388.00 2) Sales = 91000 + 16700 107,700.00 - 107,700.00 Less Variable Expenses = 107,700*.60 (64,620.00) - (64,620.00) Contribution Margin = 107700 - 64620 43,080.00 - 43,080.00 Fixed cost = 27590+2200 (29,790.00) 10,072.00 (19,718.00) Net operating income 13,290.00 (10,072.00) 3,218.00 Existing profit = 8810 - 10460 (1,650.00) Profits will increase by 3218 - (-1650) 4,868.00
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