The Milham Corporation has two divisionsEast and West. The divisions have the following revenues and expenses:

East West

Sales $720,000 $350,000

Variable costs 370,000 240,000

Traceable fixed costs 130,000 80,000

Allocated common fixed costs 120,000 50,000

Net operating income (loss) 100,000 $(20,000)

Management at Milham is considering the elimination of the West Division. If the West Division were eliminated, all of the traceable fixed costs of the West Division would be avoided, but none of the allocated common fixed costs of the West Division would be avoided (since total common fixed costs would be unaffected by this decision). If the West Division were eliminated, sales at the East division would increase by 15%. Given these data, what would be the impact of the elimination of the West Division on the companys net operating income?

The companys net operating income will decrease by $82,500

The companys net operating income will increase by $22,500

The companys net operating income will increase by $20,000

The companys net operating income will decrease by $30,000