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Q1) Western Apparel Company owns 2 stores and management is thinking eradicating East store due to declining sales. Segmented contribution income statements are given and common fixed costs are allocated on basis of sales.

 

 

West

East

Total

Sales

$525,000

90,000

$615,000

Variable costs

262,500

45,000

307,500

Direct fixed costs

62,500

25,000

87,500

Segment margin

200,000

20,000

220,000

Allocated fixed costs

137,500

35,000

172,500

Net Income

$62,500

($15,000)

$47,500

 

Western feels that if they eradicate East store that sales in West store will decline by 25%.  If they close East store, overall company net income will:

 

a) Decline by $90,000.

 

b) Decline by $62,000.

 

c) Decline by $85,625.

 

d) Decline by $20,000.

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  • Reference No.:- M916313

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