A Company Has Two Different Products That Sell to Separate

question 28

True/False

A company has two different products that sell to separate markets. Financial data are as follows:
$\begin{array}{|l|r|r|r|} \hline &{\text { Product A }} &{\text { Product B }} &{\text { Total }} \\\hline \text { Revenue } & \$ 15,000 & \$ 9,000 & \$ 24,000 \\\hline \text { Variable cost } & (8,000) & (9,200) & (17,200) \\\hline \text { Fixed cost (allocated) } & (4,000) & (1,000) &(5,000)\\\hline \text { Operating income } & \$ 3,000 & \$(1,200)&\$1,800 \\\hline\end{array}$ Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of the other. Because the contribution margin of Product B is negative, it should be dropped.

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Definitions:

Adjusted

The process of making modifications to financial statements or data to represent accurately the economic reality, often excluding one-time or non-recurring items.

Prepaid Rent

An asset account that represents rent payments made in advance of the rental period, which is then expensed during the period the space is occupied or used.

Rent Expense

The cost incurred by a company for leased property used in business operations over a specified period.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, representing the wear and tear, deterioration, or obsolescence of the asset.