6 A retail company has two departments, Womenswear and Menswear. A recent monthly income statement for the company follows: Department Total Womenswear Menswear Sales $3,200,000 $2,300,000 $900,000 Less variable expenses 2.100.000 1 500 000 600.000 Contribution margin 1,100,000 800,000 300,000 Less fixed expenses 890.000 550.000 340 000 Net income (loss) $ 210.000 $250.000 $(40.000) A study indicates that $90,000 of the fixed expenses being charged to the Menswear department are sunk costs and allocated costs that will contime even if Menswear is dropped. In addition, the elimination of the Menswear department will result in a 15 percent decrease in the sales of the Womenswear department. If the Menswear department is dropped, what will be the effect on the income of the company as a whole? a. $395,000 increase b. $395,000 decrease c. $170,000 increase d. $170,000 decrease For many years Donner Company has purchased the motors that it installs in its standard line of hair dryers. Due to a reduction in output of certain of its products, the company has idle capacity that could be used to produce the motors. The chief engineer has recommended against this move, however, pointing out that the cost to produce the motors would be greater than the current $19.50 per unit purchase price, based on production of 20,000 units: Per Unit Total Direct materials $6.25 Direct labor 3.50 Supervision 7.00 $140,000 Depreciation 80 $ 16,000 Variable overhead 2.50 Rent 040 $ 8,000 TOTAL COST $20.45 A supervisor would have to be hired to oversee production of the starters. However, the company has wufficient idle tools and machinery that no new equipment would have to be purchased. The rest charge above is allocated based on space utilized in the plant. The totalrent on the plant is $96,000 per period. The impact on net income if Donner decides to begin making the widgets would be: $5,000 increase b. $5.000 decrease e $145,000 increase d. $145,000 decrease