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 Product B $86,000 $88,000 40,420 37,840 59,65027,710 $-19,230 $10,130 $33,404 of Product A's fixed costs are avoidable; $13,855 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 $34,300. Accompanying the sales increase will be a fixed cost increase of $5,000. 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

Decrease in income by dopping Product A=-40420+33404= -7016 CM ratio of Product B=37840/88000= 43% Increase in income by Product B=(34300*43%)-5000= $9749 Effect on firm profits=-7016+9749= $2733 Increase

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