Dropping or Retaining a Segment [LO2]

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

Department Total Bath Kitchen Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,000,000 $1,000,000 $4,000,000 Variable expenses . . . . . . . . . . . . . . . . . 1,900,000 300,000 1,600,000 Contribution margin . . . . . . . . . . . . . . 3,100,000 700,000 2,400,000 Fixed expenses . . . . . . . . . . . . . . . . . . . 2,700,000 900,000 1,800,000 Net operating income (loss) . . . . . . . . . $ 400,000 $ (200,000) $ 600,000 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 a whole?