The following information is for X Company\'s two products, A and B: $-16,150 7.
ID: 2463495 • Letter: T
Question
The following information is for X Company's two products, A and B:
$-16,150
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 $35,100, but $3,200 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 $92,000 $94,000 Total variable costs 52,440 53,580 Total contribution margin $39,560 $40,420 Total fixed costs Avoidable 18,986 33,942 Unavoidable 13,194 22,628 Profit $7,380$-16,150
Explanation / Answer
Solution 7 If X drops Product B ,then it can save loss of $ 16150 but also follwing impact; Product B has $ 22628 unavoidable Cost,then Profit of Firm reduced by $ 22628 8 Here, P/V Ratio Of Product A is 43% Then Contribution of only Inccrese in Sale= 35100*43/100=15093 Profit= 15093-3200=11893 Here If X Company increase Sale than It can makes $ 15093 additional Profit
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