The following information is for X Company\'s two products, A and B, last year:
ID: 2574844 • 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 A, X Company is considering dropping it. Further analysis reveals that $26,760 of Product A's fixed costs and $6,860 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 $17,880 if Product A is dropped. What will be the effect of this increase on company profits?
Product A Product B Sales $87,220 $92,900 Total variable costs 52,332 53,882 Total fixed costs 72,150 27,120 Profit $-37,262 $11,898Explanation / Answer
7 Loss in contribution margin -34888 =52332-87220 Avoidable fixed costs 45390 =72150-26760 Change in profits 10502 8 CM ratio = (92900-53882)/92900= 42% Increase on company profits = 17880*42%= 7509.6 or 7510 Overall increase = 10502+7510= 18011.6 or 18012
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