The following information is for X Company\'s two products, A and B, last year:
ID: 2575005 • 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 $5,370 of Product A's fixed costs and $27,990 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 $17,210 if Product B is dropped. What will be the effect of this increase on company profits?
Product A Product B Sales $94,780 $85,250 Total variable costs 53,077 46,035 Total fixed costs 26,680 74,120 Profit $15,023 $-34,905Explanation / Answer
7 Contribution margin loss -39215 =46035-85250 Avoidable fixed costs 46130 =74120-27990 Change in profits 6915 8 Contribution margin ratio = (94780-53077)/94780= 44% Effect of this increase on company profits = 17210*44% = 7572 or 7272.4
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