Questions 7 and 8 refer to the following information: The following information

Question

Questions 7 and 8 refer to the following information: The following information is for X Company's two products, A and B, last year: Product A Sales Total variable costs Total fixed costs Profit 52,091 30,370 $10,559 Product B $89,040 48,082 72,670 $-31,712 Because of the reported loss for Product B, x Company is considering dropping it. Further analysis reveals that $7,720 of Product A's fixed costs and $28,430 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 $3,282 You are correct. Your receipt no. is 152-5405 PreviousTries 8. Assume that sales of Product A can be increased by $15,040 if Product B is dropped. What will be the effect of this increase on company profits? 9900 Submit Answer Incorrect. Tries 3/5 Previous Tries

Explanation / Answer

X Company If we assume that Sales of Product A can be increased by $15040 and Product B is dropped Effect of this increase on company profits will be as follows Product A % of sales Original Sales 100 93020 Less Variable cost 55.9998 52091 Contribution 44.0002 40929 Additional contribution from additional sales of $15040 of product A =15040*44% = 6617.6 Add : Saving in fixed costs calculated in Q-7 3282 Company Profits will change by 9899.6

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