A Company Has Two Different Products That Are Sold in Different

question 175

Multiple Choice

A company has two different products that are sold in different markets.Financial data are as follows: $$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } & \text { Total } \\\hline \text { Revenue } & \$ 18,000 & \$ 9400 & \$ 27,400 \\\hline \text { Variable cost } & ( 8000 ) & ( 9800 ) & ( 17,800 ) \\\hline \text { Fixed cost (allocated) } & \underline { ( 1000 ) } & \underline { ( 2000 } ) & \underline { ( 3000 ) } \\\hline \text { Operating income (loss) } & \$ 9000 & \$ ( 2400 ) & \$ 6600 \\\hline\end{array}$$ Assume that fixed costs of $1000 could be eliminated if Product B was dropped.Assume furthermore that dropping one product would not impact sales of the other.If Product B is dropped,what would be the impact on total operating income of the company?

• A) increases by $1000
• B) increases by $1400
• C) increases by $400
• D) increases by $2000

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Definitions:

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage.

Equilibrium Interest Rate

The interest rate at which the quantity of money demanded equals the quantity of money supplied, balancing savings and investment.

Loanable Funds

The funds available for borrowing in the financial markets, influenced by savings, government policies, and financial institutions' lending criteria.

Market

The arena in which buyers and sellers come together to trade goods, services, or financial instruments, establishing prices through supply and demand.