Giant Company has three products,A,B,and C.The following information is available:

Giant Company is thinking of dropping Product C because it is reporting a loss.Assuming Giant drops Product C and does NOT replace it,operating income will ________.
A)increase by $3,400
B)increase by $2,000
C)decrease by $6,000
D)decrease by $11,400

Question

Giant Company has three products,A,B,and C.The following information is available:

Giant Company is thinking of dropping Product C because it is reporting a loss.Assuming Giant drops Product C and does NOT replace it,operating income will ________.
A)increase by $3,400 
B)increase by $2,000 
C)decrease by $6,000 
D)decrease by $11,400

Quizplus · Accepted Answer

Dropping Product C would mean Giant gives up $8,000 in contribution margin while only saving $2,000 in avoidable fixed costs.Without Product C,operating income would be $6,000 less than currently reported.

Giant Company Has Three Products,A,B,and C