Boyleu2019s home center a retailing company has two

Reference no: EM13579123

Boyle%u2019s Home Center, a retailing company, has two departments, Bath and Kitchen. The company%u2019s most recent monthly contribution format income statement follows:

			Department
	Total		Bath			Kitchen
Sales	$	5,000,000	$	1,000,000		$	4,000,000
Variable expenses		1,900,000		300,000			1,600,000

Contribution margin		3,100,000		700,000			2,400,000
Fixed expenses		2,700,000		900,000			1,800,000

Net operating income (loss)	$	400,000	$	(200,000	)	$	600,000

A study indicates that $370,000 of the fixed expenses being charged to the Bath Department are sunk costs or allocated costs that will continue even if the Bath Department is dropped. In addition, the elimination of the Bath Department would result in a 10% decrease in the sales of the Kitchen Department.

Required:

If the Bath Department is dropped, what will be the effect on the net operating income of the company as a whole?

Reference no: EM13579123

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