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Central Apparel Company owns two stores and management is considering eliminating the east store due to declining sales. Contribution income statements are as follows and common fixed costs are allocated on the basis of sales.
West East Total
Sales $420,000 $90,000 $510,000
Variable costs 210,000 45,000 255,000
Direct fixed costs 50,000 25,000 75,000
Allocated fixed costs 110,000 35,000 145,000
Net Income $ 50,000 ($15,000) $35,000

Central's management feels that if they eliminate the east store, that sales in the west store will increase by 20%. If the east store is closed, what effect will occur to the overall company net income?

 

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M948994

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