Rockwell Company 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 and adding more dining tables. Segmented contribution income statements are as follows and fixed 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?
A. Net income will increase by $12,500
B. Net income will decrease to $37,500.
C. Net income will decline by $25,000
D. Net income will be $25,000

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Restaurant Cantina Total Sales $1,000,000 635,000 65,000 $800,000 $200,000 475,000 Variable costs 160,000 Direct fixed costs 15,000 50,000 Allocated fixed costs 212,500 37,500 250,000 Net Income $62,500 (S12,500) $50,000