
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
Garrett Company provided the following information:
Common fixed cost totaled $46,000. Garrett allocates common fixed cost to Product 1
and Product 2 on the basis of sales. If Product 2 is dropped, which of the following is true?
a. Sales will increase by $300,000.
b. Overall operating income will increase by $2,600.
c. Overall operating income will decrease by $25,000.
d. Overall operating income will not change.
e. Common fixed cost will decrease by $27,600.

Transcribed Image Text:Product 1
Product 2
Units sold
10,000
20,000
Price
$20
$15
Variable cost per unit
Direct fixed cost
$10
$10
$35,000
$75,000
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