Bobbin Ltd. has two departments, X and Y. The most recent segmented income statement for the corporation follows:

			Total	Dept X	Dept Y
Sales			$2,525,000	$475,000	$2,050,000
Less: variable expenses			950,000	175,000	775,000
Contribution margin			1,575,000	300,000	1,275,000
Less: fixed expenses			1,350,000	450,000	900,000
Operating income (loss)			$225,000	($150,000)	$375,000

Bobbin is currently considering shutting down Department X. A study has indicated that 40% of the fixed costs for Department X are allocated costs from head office that will continue even if the department is shut down.

In addition, the elimination of Department X would result in a 4% decrease in sales for Department Y.

Required:

1. If Department X is closed down, what will be the effect on the income of Bobbin as a whole? What would your recommendation be to the company president? Show your calculations.
2. The marketing division has done some research and has come up with an alternative to shutting down Department X. If the company spends an additional $50,000 in advertising for Department X, sales for that department should increase by 18%, but sales in Dept. Y would decrease by 3%. What would your recommendation be to the company president? Show your calculations.