A Company Has Two Different Products That Sell to Separate

A company has two different products that sell to separate markets. Financial data are as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } & { \text { Total } } \\\hline \text { Reverue } & \$ 12,000 & \$ 8,000 & \$ 20,000 \\\hline \text { Variable cost } & ( \$ 7,500 ) & ( \$ 8,100 ) & ( \$ 15,600 ) \\\hline \text { Fixed cost (allocated) } & ( \$ 3,000 ) & ( \$ 1,000 ) & ( \$ 4,000 ) \\\hline \text { Operating income } & \$ 1,500 & ( \$ 1,100 ) & \$ 400 \\\hline\end{array}$$
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Assume that fixed costs of $500 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 the impact be on total operating income?

A) Increase $1,100
B) Increase $600
C) Increase $500
D) Increase $100

Correct Answer:

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