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The following information is for X Company's two products, A and B: Product A Product B Revenue $91,000 $89,000 Total contribution margin 44,590 36,490 Total
The following information is for X Company's two products, A and B:
Product A | Product B | |||
Revenue | $91,000 | $89,000 | ||
Total contribution margin | 44,590 | 36,490 | ||
Total fixed costs | 57,040 | 31,380 | ||
Profit | $-12,450 | $5,110 |
$28,520 of Product A's fixed costs are avoidable; $18,200 of Product B's fixed costs are avoidable. X Company plans to drop Product A since it shows a loss and increase sales of Product B by $34,000. Accompanying the sales increase will be a fixed cost increase of $4,800. If X Company drops Product A and increases Product B sales, what will be the effect on firm profits?
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