Camera Corner Is Considering Eliminating Model AE2 from Its Camera

question 214

Multiple Choice

Camera Corner is considering eliminating Model AE2 from its camera line because of losses over the past quarter.The past three months of information for Model AE2 are summarized below: $\begin{array}{lr}\text { Sales (1,000 units) } & \$ 300,000 \\\text { Manufacturing costs: } & \\\quad \text { Direct materials } & 150,000 \\\quad \text { Direct labor ( } \$ 15 \text { per hour) } & 60,000 \\\quad \text { Overhead } & 100,000 \\\text { Operating loss } & (\$ 10,000) \end{array}$ Overhead costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE2 that has no resale value.
If Model AE2 is dropped from the product line,operating income will ________.

• A) increase by $10,000
• B) decrease by $20,000
• C) increase by $30,000
• D) decrease by $10,000

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Definitions:

Marginal Product Data

Information that shows the additional output generated by adding one more unit of a factor of production, holding all else constant.

Purely Competitive Market

A market structure characterized by a large number of buyers and sellers, homogeneous products, and no barriers to entry or exit, which leads to competitive pricing.

Maximize Profits

The goal of firms to achieve the highest possible profit by adjusting production and pricing strategies.

Marginal Product Data

Information related to the additional output generated by employing one more unit of a particular input.