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

Question

8 pt The following information is for X Company's two products, A and B: Product A Product B Revenue Total contribution margin Total fixed costs Profit $90,000 38,700 31,020 893,000 37,200 52,900 $7,680 -15,700 $17,992 of Product A's fixed costs are avoidable; $30,682 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 $38,700. Accompanying the sales increase will be a fixed cost increase of $3,800. If X Company drops Product B and increases Product A sales, what will be the effect on firm profits? 7. AO$4,754 B?$6,323 CO $8,410 DO si 1,185 EO $14,876 FO $19,785

Explanation / Answer

Answer

If X Company drops Product B because it shows a loss, the effect on firm profit:

= (contribution margin ratio * increase in sales) - additional fixed cost

=(43%* $28700) - $3800

=$12341 - $3800

=$8541

Will increase profit by $ 8541

W.n.

Contribution margin ratio=38700/90000 =43%

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