Part A. A merchandising company has two departments, Clothing and Housewares. A recent monthly income statement for the company follows: Total $2,500,000 Department Clothing Housewares $1,750,000 $750,000 900,000 400,000 Sales Less variable expenses Contribution margin Less fixed expenses Net operating income (loss) 1,300,000 1,200,000 800,000 850,000 400,000 $450,000 350,000 400,000 $400,000 -$50,000 A study indicates that $160,000 of the fixed expenses being charged to Housewares are sunk costs or allocated costs that will continue even if Housewares is dropped. In addition, the elimination of Housewares will result in a 15% increase in the sales of Clothing. Required: Part A If Housewares is dropped, what will be the effect on the net operating income of the company as a whole? Would you recommend Housewares be dropped? Briefly explain why. (7 marks) Part B. Our company produces several products from a base, Product A. Material and processing costs for the base product total $5,000 per tonne (per 1,000 kg). Product A can either be sold at the split-off point or processed further. Further processing using a tonne of Product A will cost $7,900 and produce 900kg of Product B that sells for $27 per kilogram. Prior to further processing, 1,000 kg of Product A can sell for $15 per kilogram. Required: Should Product A be processed further or sold at the split-off point