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

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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.

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
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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