Kahn Corporation (A Multi-Product Company) Produces and Sells 8,000 Units

question 118

Multiple Choice

Kahn Corporation (a multi-product company) produces and sells 8,000 units of Product X each year. Each unit of Product X sells for $10 and has a contribution margin of $6. If Product X is discontinued, $50,000 of the $60,000 in annual fixed costs charged to Product X could be eliminated. The annual financial advantage (disadvantage) for the company of eliminating this product should be:

• A) $2,000
• B) ($2,000)
• C) $12,000
• D) ($12,000)

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Definitions:

Reserve Ratio

The Reserve Ratio is the fraction of total deposits that a bank is required to hold in reserve and not lend out, a critical tool in monetary policy used to control the money supply.

Deposit Expansion Multiplier

A ratio that measures the maximum amount of money a bank can create with a given level of reserves.

Currency

A system of money in general use in a particular country or economic context.

Issued

Pertains to the act of officially distributing or releasing something, such as securities or legal documents.