Darren Company Has Three Product Lines: D,E,and F the Following

question 144

Multiple Choice

Darren Company has three product lines: D,E,and F The following information is
available:
$\begin{array} { | l | c c | c |} \hline & \text { D } & \text { E } & \text { F } \\\hline \text { Sales revenue } & \$ 70,000 & \$ 40,000 & \$ 28,000 \\\hline \text { Variable expenses } & \$ 40,000 & \$ 21,000 & \$ 12,000 \\\hline \text { Contribution margin } & \$ 30,000 & \$ 19,000 & \$ 16,000 \\\hline \text { Fixed expenses } & \$ 12,000 & \$ 15,000 & \$ 17,000 \\\hline \text { Operating income (loss) } & \$ 18,000 & \$ 4,000 & \$ ( 1,000 ) \\\hline\end{array}$
Darren Company is thinking of dropping product line F because it is reporting an operating loss.
- All fixed costs are unavoidable.Assume Darren Company is able to increase the sale price of product F to $30,000 with no change in volume of units sold and no change in variable costs or fixed costs.What affect will this have on operating income?

• A)Increase $2,000
• B)Increase $30,000
• C)Decrease $2,000
• D)Decrease $30,000

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Definitions:

Stock Portfolio

A collection of stocks that an individual or institution holds, representing investments across one or more types of stock, sectors, or industries.

Positive Utility

The benefit or satisfaction gained from the consumption of goods or services that contribute to an individual's well-being and happiness.

Availability Heuristic

A mental shortcut that relies on immediate examples that come to mind when evaluating a specific topic, concept, method, or decision, which can lead to biases.

Framing Effect

The cognitive bias where people react differently to a particular choice depending on how it is presented, such as a loss or gain.