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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: Department Total Hardware Linens
Bed &Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows: Department Total Hardware Linens $4,220,000 $3,130,000 $1,090,000 1,324,000 916,000 408,000 Sales Variable expenses Contribution margin 2,896,000 2,214,000 682,000 Fixed expenses 2,180,000 1,310,000 870,000 Net operating income $ 716,000 $ 904,000 $ (188,000) (loss) A study indicates that $379,000 of the fixed expenses being charged to Linens are sunk addition, the elimination of the Linens Department will result in a 14% 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? in net operating income
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