Question

Garrett Company provided the following information:

Answer 1

Answer:

Correct option is C

Overall operating income will decrease by $25,000.

Explanation:

Sales ratio = Sales of product 1 : Sales of product 2 = 200,000:300,000 = 2:3

Sum of sales ratio = 2+3 = 5

Common fixed cost:

Product 1 = 2/5×46,000 = $18,400

Product 2 = 3/5×46,000 = $27,600

Total net operating income = Net operating income of product 1 + Net operating income of product 2 = 46,600+(2,600) = 46,600-2,600 = $44,000

Now, comparing with the total net operating income of both the product ($44,000) with only product 1 ($19,000); overall operating income decreases by $25,000 (44,000-19,000)