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City Hotel's restaurant provides 3 services namely, breakfast, lunch, and dinner services. The accountant has prepared a segmented contribution margin income statement for the past
City Hotel's restaurant provides 3 services namely, breakfast, lunch, and dinner services. The accountant has prepared a segmented contribution margin income statement for the past year based on the 3-meal periods, as shown below. The Hotel manager is concerned about the lunch service, as it has been showing a loss for the past few years. Sales Less: Variable expenses Contribution margin Less: Fixed expenses Net operating income (loss) Breakfast $ 621,000 $ 261, 000 360,000 293,000 $ 67,000 $ Lunch 714,000 294,000 420,000 482,000 (62,000 Dinner Total $ 776,000$ 2,111,000 278,000 833,000 498,000 1, 278,000 398,000 1,173,000 $100,000 $ 105,000 A study indicates that $375,300 of the fixed expenses being charged to Lunch are sunk costs or allocated costs that will continue even if the Lunch service is dropped. In addition, the elimination of the Lunch service will result in a 20% decrease in the sales of the Breakfast service and a 15% decrease in Dinner service. Required: If the Lunch service is dropped, what will be the change in net operating income of the company as a whole? Net operating income by
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