Question

The following income statement is for X Company and its only two products - A and B:

Total Product A Product B
Sales $174,760 $85,650 $89,110
Variable Costs 96,836 51,390 45,446
Contribution margin $77,924 $34,260 $43,664
Fixed costs:
Avoidable 71,970 24,600 47,370
Unavoidable 31,500 5,270 26,230
Profit $-25,546 $4,390 $-29,936
Because Product B is showing a loss, X Company is considering dropping it and saving its avoidable fixed costs. If it drops Product B, X Company's new profits will be

Answer 1

Answer: The answer is $4,390

Step-by-step explanation:

Product A. Product B. Total

$ $ $

Sales. 85,650. 89,110. 174,760

Less: Variable cost. (51,390) (45,446) (96,836)

------------ ----------- ------------

Contribution. 34,260. 43,664. 77,924

Less : Fixed cost

Avoidable. (24600) (47,370) (71,970)

Unavoidable. (5,270) (26,230) (31,500)

---------- ----------- ----------

Net Profit/ Loss. 4,390 profit. ( 29,936) loss (25,546) loss

Note The statement shows clearly that on the present budget, the product B shows a loss of $29,936 and this is the reason while X company is considering dropping it. Since it drop product B then X company new profit will be $4,390