A Company Has Two Different Products That Are Sold in Different

question 43

Multiple Choice

A company has two different products that are sold in different markets. Financial data are as follows: $$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } & { \text { Total } } \\\hline \text { Revenue } & \$ 15,000 & \$ 9,500 & \$ 24,500 \\\hline \text { Variable cost } & ( 9,000 ) & ( 9,800 ) & ( 18,800 ) \\\hline \text { Fixed cost (allocated) } & ( 3,000 ) & ( 2,000 ) & ( 5,000 ) \\\hline \text { Operating income } & \$ 3,000 & ( \$ 2,300 ) & \$ 700 \\\hline\end{array}$$ Assume that fixed costs of $1,000 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) increase $1,000
• B) increase $1,300
• C) increase $300
• D) increase $2,000

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