The following information is for X Company\'s two products, A and B, last year:
ID: 2573819 • Letter: T
Question
The following information is for X Company's two products, A and B, last year:
Because of the reported loss for Product B, X Company is considering dropping it. Further analysis reveals that $5,780 of Product A's fixed costs and $27,940 of Product B's fixed costs are common costs that the company allocates to the two products.
7. If X Company drops Product B, company profits will change by
8. Assume that sales of Product A can be increased by $15,210 if Product B is dropped. What will be the effect of this increase on company profits?
Product A Product B Sales $89,390 $86,080 Total variable costs 52,740 50,787 Total fixed costs 30,780 59,400 Profit $5,870 $-24,107Explanation / Answer
current profit of company = $5,870 - $24,107 => - $18,237.
if product B is dropped:
profit of the company = $5870 - 27,940 => - $22,070.
if the product B is dropped, the profit will change by (- $22,070 - (-$18,237))
=> - $3,833.............(loss is further increasing).
8. if sales of product A are increased by $15,210.
new sales will be ($89,390 + 15,210) =>$104,600
variable costs will be ($52,740 / 89,390) * $104,600 =>$61,714.....(rounded to nearest dollar)..
the following is the calculation of the profits:
total profit = $12,106 - $27,940 => - $15,834.
the total profit will increase by (or loss will reduce by) = > - $15,834 - (- $18,237)
=>$2,403.
If product A sales increase by $15,210 the total loss is reduced by $2,403.
Product A Product B Sales $89,390 nil Total variablle costs (52,740) nil Total fixed costs (30,780) (27,940) Profit $5,870 - $27,940Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.