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

Question

The following information is for X Company's two products, A and B: Revenue Total contribution margin Total fixed costs Profit Product A $94,000 41,360 56,000 Product B $92,000 38,640 32,720 $5,920 $-14,640 $33,040 of Product A's fixed costs are avoidable; 16,360 of Product B's fixed costs are avoidable. X Company plans to drop Product A since it shows a loss and increase sales of Product B by $24,100. Accompanying the sales increase will be a fixed cost increase of $4,600. If X Company drops Product A and increases Product B sales, what will be the effect on firm profits? Submit Answer Tries 0/3

Explanation / Answer

Effect on Profit by dropping Product A = -41360+33040= -8320 CM ratio of Product B = 38640/92000= 42% Effect on profit by increasing sales of product B = (24100*42%)-4600= $5522 Effect on firm profits if X Company drops Product A and increases Product B sales = -8320+5522= -2798 or decrease of $2798

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