Boyle's Home Center, a retailing company, has two departments, Bath and Kitchen. The company's most recent monthly contribution format income statement follows:

A study indicates that $370,000 of the fixed expenses being charged to the Bath Department are sunk costs or allocated costs that will continue even if the Bath Department is dropped. In addition, the elimination of the Bath Department would result in a 10% decrease in the sales of the Kitchen Department.
Required:
If the Bath Department is dropped, what will be the effect on the net operating income of the company as awhole?

Transcribed Image Text:

Department Total Bath Kitchen Sales Variable expenses...1.900 Contribution margin . Fixed expenses Net operating income (loss) 400,000 _S5,000,000 $1,000,000 $4,000,000 1,900,000 30,000 600,000 3,100,000 700,000 2,400,000 2.700,000 900,000 1.800,000 (200,000) S 600,000