A merchandising company has two departments, Y and Z. A recent monthly income statement for the company follows: Sales Less Variable Expenses Contribution Margin Less Fixed Expenses Net Income (loss) $525,000 decrease $525, 000 increase $400,000 decrease Total $4,000,000 2,500,000 1,500,000 $400,000 increase 900,000 $600.000 Y $2,500,000 1,500,000 1,000,000 350,000 $650.000 A study indicates that $350,000 of the fixed expenses being charged to department Z are sunk costs and allocated costs that will continue even if Z is dropped. In addition, the elimination of departments Z will result in a 10% decrease in the sales of department Y. If department Z is dropped, what will be the effect on the income of the company as a whole? Department Z $1,500,000 1,000,000 500,000 550,000 $(50.000)

A merchandising company has two departments, Y and Z. A recent monthly income statement for the company follows: A study indicates that $350,000 of the fixed expenses being charged to department Z are sunk costs and allocated costs that will continue even if Z is dropped. In addition, the elimination of departments Z will result in a 10% decrease in the sales of department Y. If department Z is dropped, what will be the effect on the income of the company as a whole? $525,000 decrease $525,000 increase $400,000 decrease $400,000 increase