The following informaion is for X Company\'s two products, A and B, last year: S
ID: 2574931 • Letter: T
Question
The following informaion is for X Company's two products, A and B, last year: Sales Total variable costs Total fixed costs Profit Product A $87,500 52,500 29,690 Product B $85,820 44,626 46,370 $-5,176 Because of the reported loss for Product B, X Company is considering dropping it. Further analysis reveals that $6,490 of Product A's fixed costs and $25,730 of Product B's fixed costs are common costs that the company allocates to the two products. 7. If X Company drops Product B, company profits will change by 25950 Submit Answer Incorrect. Tries 2/5 Previous Tries 8. Assume that sales of Product A can be increased by $18,550 if Product B is dropped. What will be the effect of this increase on company profits? 33370 Submit Answer Incorrect. Tries 2/5 Previous TriesExplanation / Answer
Answer:
7. If X Company drops Product B, company profits will change by _(15464)_______
Working notes for the above answer is as under
Product B
Sales
85820
Less: variable Cost
44626
Contribution Margin
41194
Less: Unavoidable Fixed cost
25730
Net profit
15464
If company drop down the product B then it over all profit will be reduced by $15,464
8.
Assume that sales of Product A can be increased by $18,240 if Product B is dropped. What will be the effect of this increase on company profits
Sales
85700
100%
Less: variable Cost
52500
61.26%
Contribution Margin
33200
38.74%
Sales (85700+18240)
103940
Less: variable Cost (103940*61.26%)
63673.9
Contribution Margin
40266.1
Less:
Unavoidable Fixed cost (29690+25730)
55420
Net loss of the company
(15153.9 )
Product B
Sales
85820
Less: variable Cost
44626
Contribution Margin
41194
Less: Unavoidable Fixed cost
25730
Net profit
15464
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