Contemporary Trends sells paint and paint supplies, carpet, and wallpaper at a single-store location in suburban Baltimore. Although the company has been very profitable over the years, management has seen a significant decline in wallpaper sales and earnings. Much of this decline is attributable to the Internet and to companies that advertise deeply discounted prices in magazines and offer customers free shipping and toll-free telephone numbers. Recent figures follow. Paint and Supplies Carpeting Wallpaper Sales $ 190,000 $ 230,000 $ 70,000 Variable costs $ 114,000 $ 161,000 $ 56,000 Fixed costs 28,000 37,500 22,500 Total costs $ 142,000 $ 198,500 $ 78,500 Operating income (loss) $ 48,000 $ 31,500 $ (8,500 ) Management is studying whether to drop wallpaper because of the changing market and accompanying loss. If the line is dropped, the following changes are expected to occur: The vacated space will be remodeled at a cost of $6,200 and will be devoted to an expanded line of high-end carpet. Sales of carpet are expected to increase by $60,000, and the lines overall contribution margin ratio will rise by five percentage points. Contemporary Trends can cut wallpapers fixed costs by 40 percent. Remaining fixed costs will continue to be incurred. Customers who purchased wallpaper often bought paint and paint supplies. Sales of paint and paint supplies are expected to fall by 20 percent. The firm will increase advertising expenditures by $12,500 to promote the expanded carpet line.

Required: 1-a. Calculate the income or loss if Contemporary Trends closes its wallpaper operation.