Acompany has two different products that are sold in different markets. financial data are as follows: product a product b total revenue $15,000 $9,400 $24,400 variable cost (7,000) (9,800) (16,800) fixed cost (allocated) (3,000) (2,100) (5,100) operating income (loss) $5,000 $(2,500) $2,500 assume that fixed costs are all unavoidable and 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?

Operating Income of the Company will increase by $400

Explanation:

Financial Data without Product B:

Revenue                                       $15,000  

Variable Cost                               $(7,000)

Fixed Cost (Allocated)               $(5,100)

Operating Income / (Loss)        $2,900  

So,

Operating Income without Product B           $2,900  

Operating Income with both Products          $2,500  

Difference                                                        $400  

Based on the assumption that fixed costs are all unavoidable, if Product B is dropped, total fixed costs will be allocated to Product A. Moreover, revenue and variable costs of Product A are not impacted by dropping Product B.

Therefore, Operating Income of the company will increase by $400, if Product B is dropped.

*Please note that figure in brackets represent negative values.

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