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Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses
Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Total $4,100,000 1,396,000 Department Hardware $ 3,050,000 981,000 Linens $ 1,050,000 415,000 Contribution margin Fixed expenses 2,704,000 2,240,000 2,069,000 1.390,000 635,000 850,000 Net operating income (loss) $ 464,000 $ 679,000 $ (215,000) A study indicates that $374,000 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 3 elimination of the Linens Department will result in a 12% decrease in the sales of the Hardware Department Required: If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole? Show your computations
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