Eliminating a store
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10. Jo's Coffee Company owns two stores in Arizona. Their corporate office is considering eliminating the one of their stores 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 $420,000 90,000 $510,000
Variable costs 210,000 45,000 255,000
Direct fixed costs 50,000 25,000 75,000
Segment margin 60,000 20,000 180,000
Allocated fixed costs 110,000 35,000 145,000
Net Income $50,000 ($15,000) $35,000
Jo's Coffee feels that if they eliminate the East store that sales in the West store will decline by 20%. If they close the East store, overall company net income will:
A. decline by $87,000.
B. decline by $20,000.
C. decline by $62,000.
D. decline by $90,000.
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The solution explains how to determine the impact on operating income of eliminating a store
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The income will decline by the segment margin of East store as it is closed + the loss of ...
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