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

Question

The following information is for X Company's two products, A and B, last year:

Because of the reported loss for Product A, X Company is considering dropping it. Further analysis reveals that $28,750 of Product A's fixed costs and $5,150 of Product B's fixed costs are common costs that the company allocates to the two products.
7. If X Company drops Product A, company profits will change by __________.

8. Assume that sales of Product B can be increased by $16,060 if Product A is dropped. What will be the effect of this increase on company profits?

Product A     Product B Sales $85,150    $91,720    Total variable costs 51,090    53,198    Total fixed costs 71,120    29,150    Profit $-37,060    $9,372   

Explanation / Answer

7. Company Loss will change from $27,688 to $19,378

8.

There will be a decrease of loss of $6,745.6

Company's current loss 9,372-37,060 27,688

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