13. Western Apparel Company owns two stores and management is considering elimin

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13. 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 $500,500 90,000 $590,500 Variable costs 262,500 45,000 307,500 Direct fixed costs 62,500 25,000 87,500 Segment margin 175,500 20,000 195,500 Allocated fixed costs 137,500 35,000 172,500 Net Income $38,000 ($15,000) $23,000 Western feels that if they eliminate the East store that sales in the West store will decline by 15%. If they close the East store, overall company net income will: A) decline by $74,375. B) decline by $55,700. C) decline by $85,625. D) decline by $20,000.
13. 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 $500,500 90,000 $590,500 Variable costs 262,500 45,000 307,500 Direct fixed costs 62,500 25,000 87,500 Segment margin 175,500 20,000 195,500 Allocated fixed costs 137,500 35,000 172,500 Net Income $38,000 ($15,000) $23,000 Western feels that if they eliminate the East store that sales in the West store will decline by 15%. If they close the East store, overall company net income will: A) decline by $74,375. B) decline by $55,700. C) decline by $85,625. D) decline by $20,000.
13. 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 $500,500 90,000 $590,500 Variable costs 262,500 45,000 307,500 Direct fixed costs 62,500 25,000 87,500 Segment margin 175,500 20,000 195,500 Allocated fixed costs 137,500 35,000 172,500 Net Income $38,000 ($15,000) $23,000 Western feels that if they eliminate the East store that sales in the West store will decline by 15%. If they close the East store, overall company net income will: A) decline by $74,375. B) decline by $55,700. C) decline by $85,625. D) decline by $20,000. 13. 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 $500,500 90,000 $590,500 Variable costs 262,500 45,000 307,500 Direct fixed costs 62,500 25,000 87,500 Segment margin 175,500 20,000 195,500 Allocated fixed costs 137,500 35,000 172,500 Net Income $38,000 ($15,000) $23,000 Western feels that if they eliminate the East store that sales in the West store will decline by 15%. If they close the East store, overall company net income will: A) decline by $74,375. B) decline by $55,700. C) decline by $85,625. D) decline by $20,000. 13. 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 $500,500 90,000 $590,500 Variable costs 262,500 45,000 307,500 Direct fixed costs 62,500 25,000 87,500 Segment margin 175,500 20,000 195,500 Allocated fixed costs 137,500 35,000 172,500 Net Income $38,000 ($15,000) $23,000 Western feels that if they eliminate the East store that sales in the West store will decline by 15%. If they close the East store, overall company net income will: A) decline by $74,375. B) decline by $55,700. C) decline by $85,625. D) decline by $20,000. 13. 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 $500,500 90,000 $590,500 Variable costs 262,500 45,000 307,500 Direct fixed costs 62,500 25,000 87,500 Segment margin 175,500 20,000 195,500 Allocated fixed costs 137,500 35,000 172,500 Net Income $38,000 ($15,000) $23,000 Western feels that if they eliminate the East store that sales in the West store will decline by 15%. If they close the East store, overall company net income will: A) decline by $74,375. B) decline by $55,700. C) decline by $85,625. D) decline by $20,000.

Explanation / Answer

New sales =0.85*500500

=$425425

New variable cost = 262500*0.85

=$223125

Fixed cost =$62500

Common fixed cost = $137500+35000

=$172500

New profit= $(425425-223125-62500-172500)

=-$32700

Decline in overall profit = -32700-23000

=-$55700

Hence,option (B), is the correct answer

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