Garrett Company provided the following information: Product 1 Product 2
Units Sold 10,000 20,000
Price $20 $15
Variable cost per unit $10 $10
Direct fixed cost $35,000 $75,000

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.

Jennings Hardware Store marks up its merchandise by 30%. If a part costs $25.00, which of the following is true?

a. The price is $7.50.
b. The markup is $32.50.
c. The price is $32.50.
d. The markup is pure profit.
e. All of these choices are correct.