A Company Has Two Different Products That Sell to Separate

question 122

True/False

A company has two different products that sell to separate markets.Financial data are as follows:
$$\begin{array} { | l | r | r | r | } \hline & { \text { Product A } } & \text { Product B } &{ \text { Total } } \\\hline \text { Revenue } & \$ 15,000 & \$ 9,400 & \$ 24,400 \\\hline \text { Variable costs } & ( 8,000 ) & ( 9,500 ) & ( 17,500 ) \\\hline \text { Fixed costs (allocated) } &( 2,000 ) & \underline { ( 2,000 ) } & \underline { ( 4,000 ) } \\\hline \text { Operating income (loss) } & \$ 5,000 & \$ ( 2,100 ) & \$ 2,900 \\\hline\end{array}$$ 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:

Acceleration Clause

A provision in a loan agreement that allows the lender to demand immediate repayment of the balance if certain conditions are not met.

Negotiable Instrument

A financial document, such as a check or promissory note, that contains an unconditional promise or order to pay a specified amount of money, easily transferable from one party to another.

Acknowledges The Debt

The act of a debtor formally admitting the existence or validity of a debt owed to a creditor.

Promise To Pay

A legal agreement where one party agrees to repay a debt or fulfill an obligation to another party.