O 8-577 DO $-652 3-510 EO S-736 FO $-832 Questions 7 and 8 refer to the followin

Question

O 8-577 DO $-652 3-510 EO S-736 FO $-832 Questions 7 and 8 refer to the following information: The following information is for X Company's two products, A and B, last year Product B Sales Total variable costs Total fixed costs Profit Product A $91,170 51,055 29,320 810,795 $93,470 49,539 51,130 8-7,199 ecause of the reported loss for Product B, X Company is considering dropping it. Further analysis reveals that $5,890 of Product A's fixed costs and $25,320 of Product B's fixed costs are common costs that the company allocates to the two products. Splr. If X Company drops Product B, company profits will change by 7. A8-18,121 BO8-21,201 CO $-24,806 DO s-29,023 EOS-33.957 FO$39,729 pt S. Assume that sales of Product A can be increased by $14,490 if Product B is dropped. What will be the effect of this increase on company profits? 8. AO $4,419 BO $4,993 CO $5,642 DO $6,376 EO S7,204 FO $8,141 8 pf X Company is planning to drop a department that has shown a $9,000 loss in each of the last 3 years. If the depart ided, 2) some equipment will be sold immediately for S20,000, 3) sal and a discount rate of 4%, what is the net present value of dropping the departinent? , three things will happen: 1) the annual loss will be avoided, 2) some equipment will be sold im les of another product will be increased, contributing $1,000 to annual profits. Assuming a 6 year time horizon 9. AO $40.941 BO $54,451 CO 72,420 DO $96,319 EO 128,104 FO $170,378

Explanation / Answer

7A ($18,121) Sales $                    93,470 Total Variable cost $                    49,539 Relevant fixed cost $                    25,810 (51130-253200 Profit before common cost $                    18,121 So on dropping Product B , its profit will decrease by $18121 8D $6,376 Incremental sales Sales $                    14,490 Total Variable cost* $                      8,114 (14490 x 56%) Incremental income $                      6,376 *(51055 ÷ 91170 = 56%) 9C $72,420 present value of equipment sold                        20,000 Present value of annual savings and increased profit 52420 (9000+1000)*5.242                        72,420

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