A Company Has Two Different Products That Are Sold in Different

question 86

Multiple Choice

A company has two different products that are sold in different markets. Financial data are as follows: $$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } & \text { Total } \\\hline \text { Revenue } & \$ 17,000 & \$ 9300 & \$ 26,300 \\\hline \text { Variable cost } & ( 8000 ) & ( 9800 ) & ( 17,800 ) \\\hline \text { Fixed cost (allocated) } & \underline { ( 1000 ) } & \underline { ( 2100 ) } & \underline { ( 3100 ) } \\\hline \text { Operating income (loss) } & \$ 8000 & \$ ( 2600 ) & \$ 5400 \\\hline\end{array}$$ Assume that fixed costs of $2000 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) increases by $2000
• B) increases by $2500
• C) increases by $500
• D) increases by $2100

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Definitions:

Horizontal Axis

In a graph or chart, the horizontal line along which the values of one variable are plotted or measured.

Vertical Axis

In graphing data, this is the y-axis, which is typically used to measure the dependent variable or show the scale of values in a chart.

Utility Function

A mathematical representation of how consumer preferences over a set of goods and services are ranked.

Horizontal Axis

In a graphical representation, the x-axis, which typically shows the independent variable or the quantity of goods.