Games Company manufactures two products, A and B.The following information was gathered: $\begin{array}{lrr}&A&B\
\text { Selling price per unit } & \$ 54.00 & \$ 66.00 \
\text { Variable cost per unit } & 39.00 & 54.00 \
\text { Total fixed costs }& & \$ 25,000
\end{array}$ Games Company manufactures and sells three units of A for every two units of B.If the company sold 1,500 units of A, it would report operating income loss) of _____.
A)$34,500
B)$22,500
C)$25,000)
D)$9,500

Question

Quizplus · Accepted Answer

The correct answer is D because the company would report an operating income loss of $9,500 if it sold 1,500 units of A. This is because the company's total fixed costs are $25,000, and its total variable costs for 1,500 units of A and 1,000 units of B would be $117,000 (1,500 units x $39 variable cost per unit + 1,000 units x $54 variable cost per unit). This means that the company's total costs would be $142,000 ($25,000 fixed costs + $117,000 variable costs), and its total revenue would be $132,000 (1,500 units x $54 selling price per unit + 1,000 units x $66 selling price per unit). This results in an operating income loss of $9,500 ($132,000 revenue - $142,000 costs).

Games Company Manufactures Two Products, a and B Games Company Manufactures and Sells Three Units of a for Was