Accessibility Products Company Has Three Models: D,E,and F - Accessibility Products Company Is Thinking of Dropping Model F

question 47

Multiple Choice

Accessibility Products Company has three models: D,E,and F.The following information is available:
$\begin{array} { | l | r | r | r | } \hline & { \text { Model D } } &{ \text { Model E } } & { \text { Model F } } \\\hline \text { Sales revenue } & \$ 55,000 & \$ 35,000 & \$ 29,000 \\\hline \text { Variable expenses } & \$ 32,000 & \$ 13,000 & \$ 14,000 \\\hline \text { Contribution margin } & \$ 23,000 & \$ 22,000 & \$ 15,000 \\\hline \text { Fixed expenses } & \$ 16,000 & \$ 16,000 & \$ 16,000 \\\hline \text { Operating income (loss) } & \$ 7,000 & \$ 6,000 & \$ ( 1,000 ) \\\hline\end{array}$
- Accessibility Products Company is thinking of dropping model F because it is reporting an operating loss.All fixed costs are unavoidable.Assuming Accessibility Products Company drops line F and is able to double the production and sales of model E without increasing fixed costs.What affect will this have on operating income?

• A)Increase $23,000
• B)Decrease $23,000
• C)Increase $7,000
• D)Decrease $7,000

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Definitions:

Oligopoly

A market structure characterized by a small number of firms whose decisions about pricing and output affect each other.

Market Price

The price at which a good or service is currently traded in the market, determined by supply and demand.

Few Firms

A market structure characterized by a small number of companies dominating the industry, often leading to oligopolistic competition.

Optimal Strategy

A method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem, where the choice is made to maximize effectiveness or efficiency.