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Rockwell company owns a single restaurant which has a

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Rockwell Company owns a single restaurant which has a cantina primarily used to seat patrons while they wait on their tables. The company is considering eliminating the cantina and adding more dining tables. Segmented contribution income statements are as follows and fixed costs applicable to both segments are allocated on the basis of sales.


 Restaurant Cantina Total
Sales $800,000 $200,000 $1,000,000
Variable costs 475,000 160,000 635,000
Direct fixed costs 50,000 15,000 65,000
Allocated fixed costs 212,500 37,500 250,000
Net Income $ 62,500 ($12,500) $50,000

What financial effect will occur to profit if Rockwell eliminates the cantina but no more dining customers are served?

Net income will decline by $25,000.

Net income will be $50,000.

Net income will increase by $12,500.

Net income will decrease to $37,500

Reference no: EM13584746

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