ABC Company is a discount department store that has three major departments, groceries, general merchandise and drugs. Management is considering dropping groceries, which have consistently shown a net loss. The space vacated by the dropping of groceries would remain idle and the common fixed cost would remain the same. The following is the financials for the three departments: $ $ $ Total 1,900 1.420 480 Groceries $ 1,000 $ 800 $ 200 Merchandise $ 800 $ $ 560 $ $ 240 $ Drugs 100 60 40 Sales Variable costs Contribution margin Fixed expenses Direct fixed costs Common fixed costs Operating income $ $ $ 265 180 35 $ $ $ 150 $ 60 $ (10) $ 100 100 40 $ $ $ 15 20 5 Required: Compute the change of operating income if the company drop groceries. a) Should the company drop groceries? c) Assume the company wants to use the space made available by the dropping of groceries to expand the general merchandise department. The general merchandise expansion would increase sales and costs as follows: Increase in sales $ 500 Increase in direct fixed costs $ 70 The contribution margin of the increased general merchandise sales remains the same as before the expansion. Required: Compute the change in operating income if the company decides to drop the groceries department and expand the general merchandise department