Chapter 8, Problem 11MCQ

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?

1. a. Sales will increase by $300,000.
2. b. Overall operating income will increase by $2,600.
3. c. Overall operating income will decrease by $25,000.
4. d. Overall operating income will not change.
5. e. Common fixed cost will decrease by $27,600.