Questions 7 and 8 refer to the following information: The following information

Question

Questions 7 and 8 refer to the following information: The following information is for X Company's two products, A and B, last year: Sales Total variable costs Total fixed costs Profit Product A $85,820 43,768 52,130 Product B $85,070 51,042 26,170 $7,858 $-10,078 Because of the reported loss for Product A, X Company is considering dropping it. Further analysis reveals that $26,710 of Product A's fixed costs and $5,680 of Product B's fixed costs are common costs that the company allocates to the two products 7. If X Company drops Product A, company profits will change by $-16,632 You are correct. Your receipt no. is 152-137 Previous Tries 8. Assume that sales of Product B can be increased by $15,120 if Product A is dropped. What will be the effect of this increase on company profits? -10584 Submit Answer Incorrect. Tries 3/5 Previous Tries Communication Blocked Send Feedback

Explanation / Answer

8 Contribution margin ratio for product B = (85070-51042)/85070= 40.00% Increase on company profits = 15120*40%= 6048

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