Question

The following income statement is for X Company's two products, A and B:

			Product A	Product B
Revenue			$95,000	$86,000
Total variable costs			56,050	43,860
Total contribution margin			$38,950	$42,140
Total fixed costs
Avoidable			17,926	30,173
Unavoidable			14,084	23,707
Profit			$6,940	$-11,740

If X Company drops Product B because it shows a loss and is able to use the vacant space to increase sales of Product A by $33,700, with $3,400 of additional fixed costs, what will be the effect on firm profits?

Answer 1

Effect on income = Decrease in income by -$1,550

Put the answer in Negative number with a minus sign

Working

Net Total Income (loss) Before discontinuing Product B (6940-11740)	$   (4,800.00)
Net Total Income (loss) After discontinuing Product B	$   (6,350.00)
Increase in loss	$   (1,550.00)

.

	Product A	Product B	TOTAL
Revenue	$128,700.00		$ 128,700.00
Total variable costs	$ 75,933.00		$    75,933.00
Total contribution margin	$ 52,767.00	$             -	$    52,767.00
Total fixed costs
Avoidable	$ 21,326.00		$    21,326.00
Unavoidable	$ 14,084.00	$ 23,707.00	$    37,791.00
Profit	$ 17,357.00	$ (23,707.00)	-$      6,350.00