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:

Reaction Formation

In psychoanalytic theory, the defense mechanism that keeps an anxiety-producing impulse or thought in check by producing its opposite.

Superego

In psychoanalytic theory, the part of the mind that consists of the conscience and the individual’s system of internalized rules of conduct, or morality.

Psychoanalytic Theory

A theory in psychology originated by Sigmund Freud, which posits that human behavior is the result of interactions among the id, ego, and superego, within the context of sexual and aggressive drives.

Ego

In psychoanalytic theory, the relatively rational part of the mind that balances the competing claims of the id, the superego, and reality.