B&B$,$ a retailer, has two departments: beds and linens. A recent monthly income statement for the company follows:

A study indicates that $$240,000$ of the fixed expenses being charged to linens are sunk costs or allocated costs that winue

even if the linens department is dropped. In addition, the elimination of the linens department will result in a $20\%$ decrease in the sales

of the beds department.

Required:

If the linens department is dropped, what will be the effect on the net operating income of the company as a whole?B&B$,$ a retailer, has two departments: beds and linens. A recent monthly income statement for the company follows:

Department

Beds Linens Total

Sales $ $3,000,000$ $ $1,000,000$ $ $4,000,000$

Less: Variable expenses $1000,000400,0001,400,000$

Contribution margin $2,000,000600,0002,600,000$

Less: Fixed expenses $1,400,000800,0002,200,000$

Net operating income $($loss$)$ $ $600,000$ $ $(200,000)$ $ $400,000$

A study indicates that $$240,000$ of the fixed expenses being charged to linens are sunk costs or allocated costs that will continue even if the linens department is dropped. In addition, the elimination of the linens department will result in a $20\%$ decrease in the sales of the beds department.

Required:

If the linens department is dropped, what will be the effect on the net operating income of the company as a whole?