Compute overall company net income

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Reference no: EM139615

Western Apparel Company owns two stores and management is considering eliminating the East store due to declining sales. Segmented contribution income statements are as follows and common fixed costs are allocated on the 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 eliminate the East store that sales in the West store will decline by 25%. If they close the 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.

Reference no: EM139615

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