Please answer both 7 and 8.
The following information is for X Company’s two products, A and B:
| Product A | Product B | |||
| Revenue | $87,000 | $92,000 | ||
| Total variable costs | 46,980 | 54,280 | ||
| Total contribution margin | $40,020 | $37,720 | ||
| Total fixed costs | ||||
| Avoidable | 34,771 | 18,873 | ||
| Unavoidable | 25,179 | 13,667 | ||
| Profit | $-19,930 | $5,180 | ||
7. If X Company drops Product A because it shows a loss, what will be the effect on firm profits?
| Tries 0/3 |
8. Assume that if X Company drops Product A, it can use the vacant space to increase sales of Product B by $37,900, but $4,400 of additional fixed costs will be incurred. This use of the vacant space will result in an increase in X Company’s profits of
7. If X Company drops Product A because it shows a loss, what will be the effect on firm profits?
Variable costs are always avoidable and Fixed costs has two components. One is un avoidable that is it will be done even if
| Product A | |||
| Revenue | 87000 | ||
| Total variable costs | 46980 | ||
| Total contribution margin | 40020 | ||
| Total fixed costs | |||
| Avoidable | 34771 | ||
| Profit | 5249 | ||
From the above calculation we could see that if company dropp product A it will have loss of $ 5249.
Variable costs are always avoidable and Fixed costs has two components. One is un avoidablethat is it will be done even if the product is not produced and the other one is avoidable that is itwill be saved if the product is not produced.
So dropping of option A is loss of income 5249
And overall profit of the company x will be as follow
| Product B | |
| Revenue | 92000 |
| Total variable costs | 54280 |
| Total contribution margin | 37720 |
| Total fixed costs | |
| Avoidable | 18873 |
| Unavoidable | 13667 |
| Unavoidabl of A | 25179 |
| Profit | -19999 |
8. Assume that if X Company drops Product A, it can use the vacant space to increase sales of Product B by $37,900, but $4,400 of additional fixed costs will be incurred. This use of the vacant space will result in an increase in X Company’s profits of
| Product B | |
| Revenue | 92000 |
| Add: Additional Sale | 37900 |
| Total Revenue | 129900 |
| Total variable costs | 54280 |
| Add: Additional Cost | 4400 |
| Total contribution margin | 71220 |
| Total fixed costs | |
| Avoidable | 18873 |
| Unavoidable | 13667 |
| Unavoidabl of A | 25179 |
| Profit | 13501 |
Company Have a profit of 13501 so company should go for this option
