The following information is for X Company\'s two products, A and B, last year:
ID: 2575015 • 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 $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 $9,372Explanation / Answer
7 Contribution margin loss -34060 =51090-85150 Avoidable fixed costs 42370 =71120-28750 Change in profits 8310 8 Contribution margin ratio = (91720-53198)/91720=42% Effect of this increase on company profits = 16060*42% = 6745 or 6745.2
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.