XYZ Comapny has three departments, Kitchen, Bath and Door. The following are the income statements of these departments: Total Bath Kitchen Door Sales Variable Expenses Contribution Margin $5,000,000 1.900.00 3.100.000 $1,000,000 300.000 700.000 $1,000,000 200.000 800.000 $3,000,000 1.400.000 1.600.000 Fixed Expenses: Depreciation Advertising Total Fixed Expenses Net operating income (loss) 2,000,000 100.000 2.100.000 $1.000.000 800.000 20.000 820.000 (120.000) 400.000 30.000 1 430.000 370.000 800,000 50.000 850.000 750.000 The elimination of the Bath Department would result in a 10% decrease in the sales of the Kitchen Department, In addition, a study indicates that depreciation expenses being charged to the Bath Department are sunk costs that will continue even if the Bath Department is dropped. However, $15,000 of advertising expenses allocated to Bath department will not continue if it is dropped. Required. 1- Prepare a schedule that shows the net operating income of the Company if the Bath Dept. is kept and the net operating income if the Bath Dept. is dropped, and the difference (Increase or decrease in operating income) 2- What is your decision, and why? Answer: Item Difference Total Before Dropping Bath Dept. Total After Dropping Bath Dept. 2- Decision