The following information is for X Company\'s two products, A and B: 7. If X Com

Question

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

7. If X Company drops Product B because it shows a loss, what will be the effect on firm profits?

8. Assume that if X Company drops Product B, it can use the vacant space to increase sales of Product A by $36,400, but $3,600 of additional fixed costs will be incurred. This use of the vacant space will result in an increase in X Company's profits of:

Product A Product B Revenue $86,000    $92,000    Total variable costs   50,740      52,440    Total contribution margin $35,260    $39,560    Total fixed costs    Avoidable 15,720    30,784       Unavoidable   13,940      28,416    Profit $5,600    $-19,640   

Explanation / Answer

If product B is dropped A B Revenue 86000 0 Total varaible Costs 50740 0 Total Contribution Margin 35260 0 Total Fixed Costs Avoidable 15720 0 Unavoidable 13940 13940 Profit 5600 -13940 Total 5600-13940 -8340 If B is continued 5600-19640 -14040 Increase in Firm Profit 14040-8340 5700 The profit of the firm will increase by $ 5700 8 Variable cost= 50740/86000 59% A B Revenue 122400 0 Total varaible Costs 72216 0 Total Contribution Margin 50184 0 Total Fixed Costs Avoidable 15720 0 Unavoidable 13940 13940 Additional Cost 3600 Profit 16924 -13940 Total 16924-13940 2984

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