Reference no: EM13600846

Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows:

• Sales $4,000,000 $3,000,000 $1,000,000
• Variable expenses 1,300,000
• 900,000
• 400,000

A study indicates that $340,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 10% decrease in the sales of the Hardware Department.
Required:
If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole? (Input the amount as positive value. Omit the "$" sign in your response.)

• Contribution margin 2,700,000 2,100,000 600,000
• Fixed expenses 2,200,000 1,400,000 800,000
• Net operating income (loss) $500,000
• $700,000
• $(200,000)

Required:

If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole? (Input the amount as positive value. Omit the "$" sign in your response.)