Western feels that if they eradicate east store that sales, Ask an Expert

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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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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M916313

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