What effect will occur if Mel’s Diner eliminates the cantina if there is no effect on restaurant sales?Discuss

4. 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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