A Company Has Two Different Products That Are Sold in Different

question 98

Multiple Choice

A company has two different products that are sold in different markets.Financial data are as follows: $$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } & \text { Total } \\\hline \text { Revenue } & \$ 15,000 & \$ 9400 & \$ 24,400 \\\\\hline \text { Variable cost } & ( 7000 ) & ( 9800 ) & ( 16,800 ) \\\\\hline \text { Fixed cost (allocated) } & \underline { ( 3000 ) } & \underline { ( 2100 ) } & \underline { ( 5100 ) } \\\\\hline \text { Operating income (loss) } & \underline { \$ 5000} & \underline { \$ ( 2500 ) } & \underline { \$ 2500} \\\\\hline\end{array}$$ Assume that fixed costs are all unavoidable and 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 $2100
• B)increases by $400
• C)decreases by $2100
• D)decreases by $400

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Definitions:

Income Tax Expense

The cost incurred by businesses or individuals due to tax obligations on earned income.

Corporations Proprietorships

Business entities where corporations are legally independent from their owners and proprietorships are owned and run by one individual, with no legal distinction between the owner and the business.

Retained Earnings

The portion of net income not distributed as dividends but retained by the company to be reinvested in its core business or to pay debt.

Deficit

The amount by which expenses exceed income or liabilities surpass assets.