Cesar Company Has Three Product Lines: A,B and C Assume Cesar Company Drops Product C

question 141

Multiple Choice

Cesar Company has three product lines: A,B and C.The following annual information is available:
$\begin{array}{llll}&\text { Product A }&\text { Product B }&\text { Product C }\\\text { Sales } & \$ 100,000 & \$ 90,000 & \$ 44,000 \\\text { Variable costs } & \underline{76,000} & \underline{48,000} & \underline{35,000}\\\text { Contribution margin } & 24,000 & 42,000 & 9,000 \\\text { Avoidable fixed costs } & 9,000 & 18,000 & 3,000 \\\text { Unavoidable fixed costs } & 6,000 & 9,000 & 7,700\\\text { Operating income(loss) }&\$9,000&\$15,000&\$(1,700) \end{array}$
Assume Cesar Company drops Product C.Cesar Company then doubles the production and sales of Product B without increasing fixed costs.What will happen to operating income?

• A) increase by $15,000
• B) increase by $24,000
• C) increase by $36,000
• D) increase by $42,000

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Definitions:

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the strategic objectives of an organization, such as acquiring new machinery or expanding operations.

Incremental Sales

Additional sales generated by a specific business activity or decision, such as a marketing campaign or product launch.

Operating Expenses

Costs associated with the day-to-day operations of a business, excluding direct labor and materials costs.

Incremental Sales

Additional revenues generated from a new marketing campaign, sales strategy, or any activity beyond normal operations.