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A contract with the government for 5,000 units of the pen calls for the reimbursement of all manufacturing costs plus a fixed fee of P1,000.

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A contract with the government for 5,000 units of the pen calls for the reimbursement of all manufacturing costs plus a fixed fee of P1,000. No variable marketing costs are incurred on the government contract. You are asked to compare the following two alternatives: Sales each month to Alternative A Alternative B Regular customers 15,000 units 15,000 units Government 0 units 5,000 units Is operating income under alternative B greater than alternative A? If so, by how much

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