A Company Has Two Different Products That Are Sold in Different

question 56

Multiple Choice

A company has two different products that are sold in different markets.Financial data are as follows:
$$\begin{array} { | l | l | l | l | } \hline & \text { Product A } & \text { Product B } & \text { Total } \\\hline \text { Revenue } & \$ 18,000 & \$ 9500 & \$ 27,500 \\\hline \text { Variable cost } & ( 9000 ) & ( 9700 ) & ( 18,700 ) \\\hline \text { Fixed cost (allocated) } & \$ 2000 ) & \$ 2000 ) & ( 4000 ) \\\hline \text { Operating profit } & \$ 7000 & ( \$ 2200 ) & \$ 4800 \\\hline\end{array}$$
Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of the other.If Product B is dropped,what would be the impact on total operating profit of the company?

• A) decrease $2000
• B) increase $2000
• C) decrease $200
• D) increase $200

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Definitions:

Extraordinary Gain

Income from events that are both unusual in nature and infrequent in occurrence, excluded from regular business operations when assessing profitability.

Note Receivable

A financial claim against another party that is evidenced by a written promise to pay a specified sum of money on demand or at a set time.

Impairment

A decrease in the recoverable value of an asset below its carrying amount on the balance sheet, leading to an adjustment of the book value.

Bad Debt Expense

Represents the amount of receivables that a company does not expect to collect and is treated as an expense on the income statement.