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A Company Has Two Different Products That Sell to Separate

question 96

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A company has two different products that sell to separate markets. Financial data are as follows:
 Product A  Product B  Total  Revenue $12,000$8,000$20,000 Variable cost ($7,500)($8,100)($15,600) Fixed cost (allocated) ($3,000)($1,000)($4,000) Operating income $1,500($1,100)$400\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } & { \text { Total } } \\\hline \text { Revenue } & \$ 12,000 & \$ 8,000 & \$ 20,000 \\\hline \text { Variable cost } & ( \$ 7,500 ) & ( \$ 8,100 ) & ( \$ 15,600 ) \\\hline \text { Fixed cost (allocated) } & ( \$ 3,000 ) & ( \$ 1,000 ) & ( \$ 4,000 ) \\\hline \text { Operating income } & \$ 1,500 & ( \$ 1,100 ) & \$ 400 \\\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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