The following income statement is for X Company's two products, A and B: Product A Product...
The following income statement is for X Company's two products, A and B:
| Product A | Product B | |||
| Revenue | $90,000 | $91,000 | ||
| Total variable costs | 47,700 | 52,780 | ||
| Total contribution margin | $42,300 | $38,220 | ||
| Total fixed costs | ||||
| Avoidable | 34,382 | 17,663 | ||
| Unavoidable | 24,898 | 15,047 | ||
| Profit | $-16,980 | $5,510 | ||
If X Company drops Product A because it shows a loss and is able to
use the vacant space to increase sales of Product B by $26,800,
with $3,200 of additional fixed costs, what will be the effect on
firm profits?
Homework Answers
| Loss in Contribution margin of product A | -42300 | |
| Avoidable fixed costs | 34382 | |
| Increase in Contribution margin of product B | 11256 | =38220/91000*26800 |
| Additional fixed costs | -3200 | |
| Net change in profits | 138 | |
| $138 is correct answer |
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