A Company Has Two Different Products That Sell to Separate

question 144

True/False

A company has two different products that sell to separate markets.Financial data are as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } &{ \text { Total } } \\\hline \text { Revenue } & \$ 15,000 & \$ 9,000 & \$ 24,000 \\\hline \text { Variable costs } & ( 7,000 ) & ( 9,200 ) & ( 16,200 ) \\\hline \text { Fixed costs (allocated) } & ( 4,000 ) & ( 1,000 ) & ( 5,000 ) \\\hline \text { Operating income (loss) } & \$ 4,000 & \$ ( 1,200 ) & \$ 2,800 \\\hline\end{array}$$ Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of the other.Because the contribution margin of Product B is negative,it should be dropped.

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Definitions:

Recovered

Refers to the process of regaining or securing an amount of money, property, or other resource that was previously lost or owed.

Profits

The financial gain obtained when the revenue generated from business activities exceeds the expenses, taxes, and costs involved in sustaining the activity.

Discounted Cash-flow Analysis

A financial model that estimates the value of an investment based on its expected future cash flows, discounted back to their present value.

Debts

Money that is owed or due, typically resulting from borrowing funds or purchasing goods and services on credit.