Mel’s Diner owns a single restaurant, which has a cantina primarily used to seat patrons while they wait on their tables. The company is considering eliminating the cantina. Segmented contribution income statements are as follows and fixed costs applicable to both segments are allocated on the basis of square footage. Restaurant Cantina Total Sales $800,000 $200,000 $1,000,000 Variable costs 475,000 160,000 635,000 Direct fixed costs 50,000 15,000 65,000 Allocated fixed costs 212,500 37,500 250,000 Net income $ 62,500 ($ 12,500) $ 50,000 What effect will occur if Mel’s Diner eliminates the cantina if there is no effect on restaurant sales?
Mel’s Diner owns a single restaurant, which has a cantina primarily used to seat patrons while they wait on their tables. The company is considering eliminating the cantina. Segmented contribution income statements are as follows and fixed costs applicable to both segments are allocated on the basis of square footage.
Restaurant Cantina Total
Sales $800,000 $200,000 $1,000,000
Variable costs 475,000 160,000 635,000
Direct fixed costs 50,000 15,000 65,000
Allocated fixed costs 212,500 37,500 250,000
Net income $ 62,500 ($ 12,500) $ 50,000
What effect will occur if Mel’s Diner eliminates the cantina if there is no effect on restaurant sales?
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