Western feels that if they eliminate the East store that saels in the West store

Question

Western feels that if they eliminate the East store that saels in the West store will decline by 20%. If they close the East store, What will happen to overall company net income?

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 otal Sales 5420,000 $90,000 $510,000 210,000 45,000 255,000 costs Diract costa Segment margn Allocated 180,000 20000 180,000 conts Net ncome Westam tooi that fthay .?minato the East storo tat nlas inte West store wi docína by2%?fthay lona tho East store, oweral company net income w 50,000 15.000 $35,000

Explanation / Answer

Loss in segment margin of East store -20000 Contribution margin lost of West store -42000 =(420000-210000)*20% Overall effect -62000 Net income will decrease by $62000

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