The following information is for X Company\'s two products, A and B, last year:
ID: 2573986 • 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 $6,450 of Product A's fixed costs and $26,740 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 $18,240 if Product B is dropped. What will be the effect of this increase on company profits?
Product A Product B Sales $85,180 $88,380 Total variable costs 51,108 47,725 Total fixed costs 28,860 75,300 Profit $5,212 $-34,645Explanation / Answer
Answer 7. Statement of Incremental Profit (Loss) If Product B is Dropped Incremental Revenue Savings in Variable Costs 47,725 Savings in Fixed Costs ($75,300 - $26,740) 48,560 96,285 Incremental Cost Loss of Sales Revenue of Product B 88,380 Incremental Profit (Loss) 7,905 Answer 8. Statement of Incremental Profit (Loss) If Product B is Dropped Incremental Revenue Savings in Product B Savings in Variable Costs 47,725 Savings in Fixed Costs ($75,300 - $26,740) 48,560 Sales Revnue of Product A 18,240 114,525 Incremental Cost Loss of Sales Revenue of Product B 88,380 Variable Cost - Product A - $51,108/$85,180 X $18,240 10,944 99,324 Incremental Profit (Loss) 15,201
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