The following information is for X Company\'s two products, A and B Total contri

Question

The following information is for X Company's two products, A and B Total contribution margin Total fixed costs Profit ProductA $87,000 35,670 30,470 $5,200 Product B $95,000 45,600 51,940 $-6,340 $16,149 of Product A's fixed costs are avoidable; $28,567 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 $28,500 Accompanying the sales increase will be a fixed cost increase of $3,000. If X Company drops Product B and increases Product A sales, what will be the effect on firm profits? Submit Anwer Tries 0/3

Explanation / Answer

Effect on Profit by dropping Product B = -45600+28567= -17033 CM ratio of Product A = 35670/87000= 41% Effect on profit by increasing sales of product A = (28500*41%)-3000= $8685 Effect on firm profits if X Company drops Product B and increases Product A sales = -17033+8685= -8348 or decrease of $8348

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