Question 2 (8 marks) Company X manufactures three products A, B and C. The present net annual income from these is as follows: Total $'000 $'000 $'000 $'000 Sales 180 Variable Costs Contribution 20 Fixed Costs Profit/(Loss) 70 30 23 Company X is concerned about its poor profit performance, and is considering whether or not to cease selling B and C. It is felt that selling prices cannot be raised or lowered without adversely affecting net income. $19,000 of the fixed costs of B are direct fixed costs which would be saved if production ceased. All other remaining fixed costs attributable to B, it is considered, would remain the same. All the fixed costs attributable to C would not be saved if production ceased as the machinery used could be used for other proposes. By stopping production of B, it were possible to use the resources realized for the production of a new item D. D, which would sell for $40,000 and incur variable costs of $30,000 and extra direct fixed costs of $8,000. By stopping production of C, it were possible to use the resources realized for the production of a new item E. E, which would sell for $60,000 and incur variable costs of $10,000 and extra direct fixed costs of $10,000. Required: Suggest whether Company X should shut down the production of B and switch resources to make D and/or shut down the production of C and switch resources to make E. Please explains