Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

The following information is for X Company\'s two products, A and B: $14,977 of

ID: 2453177 • Letter: T

Question

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


$14,977 of Product A's fixed costs are avoidable; $29,675 of Product B's fixed costs are avoidable. X Company plans to drop Product B since it shows a loss and increase sales of Product A by $26,400. Accompanying the sales increase will be a fixed costs increase of $5,000. If X Company drops Product B and increases Product A sales, what will be the effect on firm profits?

Product A Product B Revenue $90,000    $86,000    Total contribution margin 36,900    42,140    Total fixed costs 27,230    55,990    Profit $9,670    $-13,850   

Explanation / Answer

Existing Particulars Product A Product B Total Revenue                     90,000.00              86,000.00            176,000.00 Variable Costs = Sales - Cont                     53,100.00              43,860.00              96,960.00 Total contribution margin                     36,900.00              42,140.00              79,040.00 Total fixed costs                     27,230.00              55,990.00              83,220.00 Profit                        9,670.00            (13,850.00)              (4,180.00) Proposed Particulars Product A Product B Total Revenue                   116,400.00            116,400.00 Variable Costs = Sales - Cont                     68,676.00              68,676.00 Total contribution margin                     47,724.00              47,724.00 Total fixed costs                     32,230.00              26,315.00              58,545.00 Profit                     15,494.00            (26,315.00)            (10,821.00) Firms Profit wil decrease further by 6,641(10821-4180)