Question
The following are the budgeted profit functions for X Company's two products, A and B, for next year: Product A: P = .40 (R) -
The following are the budgeted profit functions for X Company's two products, A and B, for next year:
Product A: P = .40 (R) - $24,090
Product B: P = .55 (R) - $55,610
where R is revenue. Budgeted revenue for the two products are $90,000 and $94,000, respectively. Unavoidable fixed costs for the two products are $9,636 and $23,912, respectively.
The company is considering dropping Product B because it appears to be losing money. If it does, the resulting freed-up resources can be used to increase revenue from sales of Product A by $35,200, but that will require $2,400 of additional fixed costs.
If X Company drops B and increases revenue from A, firm profits will change by
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