Zoota Ltd Makes Four Products: Alta, Bepha, Delma and Gamta

question 28

Multiple Choice

Zoota Ltd makes four products: Alta, Bepha, Delma and Gamta. The selling price and per unit costs are show below.
*Alta and Delma share the same factory; therefore, monthly rent is allocated equally between the two products. Other allocated monthly fixed costs include administrative costs, which are allocated based on a $2/unit charge.
Zoota Ltd decides to drop Delma because it is unprofitable. Christina Bobo, the management accountant of Zoota Ltd, suggests that by dropping Delma the company can save $1 x 5000 = $5000 a month. Your assessment of Christina's suggestion is:

• A) Christina is correct in her quantitative assessment; although she needs to also consider the qualitative factors.
• B) Christina is incorrect because by dropping Delma, the company actually loses $3 per unit.
• C) Christina is incorrect, because by dropping Delma, the company actually loses $1 per unit.
• D) Christina is incorrect, because Delma is currently at break-even point.

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Definitions:

Risk-Adjusted Performance

A measure of how much risk is involved in producing a financial return, used to compare the performance of investment portfolios.

Comparison Universe

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