The following information is for X Company\'s two products, A and B: Product A P
ID: 2461987 • Letter: T
Question
The following information is for X Company's two products, A and B:
Product A Product B
Revenue $90,000 $90,000
Total variable costs 36,900 44,100
Total contribution margin 36,900 44,100
Total fixed costs
Avoidable 16965 29635
Unavoidable 12285 27355
Profit $7650 $-12890
1. If X Company drops Product B because it shows a loss, what will be the effect on firm profits?
2. Assume that if X Company drops Product B, it can use the vacant space to increase sales of Product A by $36,800, but
$3,800 of additional fixed costs will be incurred. This use of the vacant space will result in an increase in X Company's profits of
Please show your work and need help.
Explanation / Answer
Product A Product B Total Revenue 90000 90000 180000 Variable Costs 36900 44100 81000 Contribution 53100 45900 99000 Fixed Cost Avoidable 16965 29635 46600 Unavoidable 12285 27355 39640 Profit 23850 -11090 12760 If product B is dropped Product A Product B Total Revenue 90000 90000 Variable Costs 36900 36900 Contribution 53100 53100 Fixed Cost Avoidable 16965 16965 Unavoidable 12285 27355 39640 Profit 23850 -27355 -3505 The Net Profit will decrease by 12760+3505 16265 2 If product A sales increased by $ 36800 Product A Product B Total Revenue 126800 126800 Variable Costs 51988 51988 Contribution 74812 74812 Fixed Cost Avoidable 20765 20765 Unavoidable 12285 27355 39640 Profit 41762 -27355 14407 The Net Profit will increase by 14407-12270 2137
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.