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

What financial effect will occur to profit if Rockwell eliminates the cantina but no more dining customers are served?
Net income will increase by $12,500
Net income will decrease to $37,500
Net income will decline by $25,000
Net income will be $10,000.

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Restaurant Cantina Total Sales Variable costs Direct fixed costs Allocated fixed costs Net Income $800,000 475,000 50,000 212,500 $200,000 160,000 15,000 $1,000,000 635,000 65,000 250.000 37.500 $ 62.500 $50.000 ($12.500)