A company has two different products that are sold in different markets. Financial data are as follows: $\begin{array}{|l|r|r|r|}
\hline& \text { Product A } & \text { Product B } &{\text { Total }} \
\hline \text { Revenue } & \$ 15,000 & \$ 9,500 & \$ 24,500\\hline \text { Variable cost } & (9,000) & (9,800) & (18,800) \
\hline \text { Fixed cost (allocated) } & \underline{(3,000)} & (2,000) & (5,000) \
\hline \text { Operating income } & \$ 3,000 & (\$ 2,300) & \$ 700 \
\hline
\end{array}$
-Assume that fixed costs of $1,000 could be eliminated if product B was dropped. Assume furthermore that dropping one product would not impact sales of the other. If Product B is dropped, what would be the impact on total operating income of the company?

Question

A company has two different products that are sold in different markets. Financial data are as follows: $\begin{array}{|l|r|r|r|} 
\hline& \text { Product A } & \text { Product B } &{\text { Total }} \
\hline \text { Revenue } & \$ 15,000 & \$ 9,500 & \$ 24,500\\hline \text { Variable cost } & (9,000) & (9,800) & (18,800) \
\hline \text { Fixed cost (allocated) } & \underline{(3,000)} & (2,000) & (5,000) \
\hline \text { Operating income } & \$ 3,000 & (\$ 2,300) & \$ 700 \
\hline
\end{array}$ 
-Assume that fixed costs of $1,000 could be eliminated if product B was dropped. Assume furthermore that dropping one product would not impact sales of the other. If Product B is dropped, what would be the impact on total operating income of the company?

Quizplus · Accepted Answer

If Product B is dropped, the company saves $1,000 in fixed costs and loses the operating loss of $2,300 from Product B, resulting in a net increase of $1,300 in operating income.

A Company Has Two Different Products That Are Sold in Different