Northern Company owns two stores and management is considering eliminating the South store due to declining sales. Segmented contribution income statements are as follows and common fixed costs are allocated on the basis of sales.

Northern feels that if they eliminate the South store, sales in the North store will decline by
20%. If they close the South store, overall company net income will:
a. Decline by $90,000.
b. Decline by $85.625.
c. Decline by $62,000.
d. Decline by $20.000.

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North South Total Sales Variable costs Direct fixed costs Segment margin Allocated fixed costs $475,000 242,500 72,500 160,000 120,000 69,000 35,500 15,500 48,000 (S32,500) S595,000 311,500 108,000 175,500 152,500 S23,000 104,500 Net Income S55,500