A Company Has Two Different Products That Are Sold in Different

question 73

Multiple Choice

A company has two different products that are sold in different markets. Financial data are as follows: $\begin{array}{|l|r|r|r|} \hline& \text { Product A } & \text { Product B } &{\text { Total }} \\\hline \text { Revenue } & \$ 15,000 & \$ 9,500 & \$ 24,500\\\hline \text { Variable cost } & (9,000) & (9,800) & (18,800) \\\hline \text { Fixed cost (allocated) } & \underline{(3,000) } & (2,000) & (5,000) \\\hline \text { Operating income } & \$ 3,000 & (\$ 2,300) & \$ 700 \\\hline\end{array}$
-Assume that fixed costs of $1,000 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) increase $1,000
• B) increase $1,300
• C) increase $300
• D) increase $2,000

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Definitions:

Case-study Analysis

A research method involving the detailed examination of a single case or cases, often used in psychology, business, or social sciences.

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A defense mechanism where unpleasant thoughts, memories, or desires are unconsciously excluded from conscious thought.