Central Apparel Company owns three stores and management is considering eliminating the east store due to declining sales. Contribution income statements are as follows and common fixed costs are allocated on the basis of sales (amounts in thousands).

SouthWestEastTotal

Sales$1,800$4,200$900$6,900

Variable costs9002,1004503,450

Direct fixed cost3005002501,050

Allocated fixed cost4501,0502251,725

Net Income$150$550($25)$675

Central's management feels that if they eliminate the east store, sales in the west store will increase by 20%. Sales in the south store will be unaffected.

1. Prepare new income statements in the format below assuming the elimination of the east store.
2. Should Central eliminate the east store?Why or why not?

SouthWestTotal

Sales

Variable costs

Direct fixed costs

Allocated fixed costs

Net Income