The following information is for X Company\'s two products - A and B: The compan

Question

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

The company is considering dropping Product B because of the $21,200 loss. If X Company drops Product B, it will use the freed-up resources to increase sales of Product A by $16,000. If X Company drops Product B and increases sales of A, firm profits will change by

Product A Product B Sales $90,000    $87,000    Total contribution margin 38,700    34,800    Fixed costs:    Avoidable 24,000    27,000       Unavoidable    7,000       29,000    Profit $7,700    $-21,200   

Explanation / Answer

Loss in contribution margin of Product B -34800 Avoidable Fixed costs 27000 Increase in contribution margin of Product A 6880 =38700/90000*16000 Change in income -920 Income decreases by $920

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