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.

Western feels that if they eliminate the East store that sales in the West store will decline by 25%. If they close the East store, overall company net income will:
A) Decline by $90,000.
B) Decline by $62,000.
C) Decline by $85,625.
D) Decline by$20,000.

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Total Sales Variable costs Direct fixed costs Segment margin Allocated fixed costs 137500 Net Income West $525,000 262,500 62.500 200.000 East 90.000 $615,000 45,000 307,500 25.000 20,000 220,000 35.000 172.500 S62.500 (S15.000 47500