Boyle\'s Home Center, a retailing company, has two departments, Bath and Kitchen

Question

Boyle's Home Center, a retailing company, has two departments, Bath and Kitchen. The company's most recent monthly contribution format income statement follows: A study indicates that $378,000 of the fixed expenses being charged to the Bath Department are sunk costs or allocated costs that will continue even if the Bath Department is dropped. In addition, the elimination of the Bath Department would result in a 16% decrease in the sales of the Kitchen Department. If the Bath Department is dropped, what will be the effect on the net operating income of the company as a whole? (Input the amount as a positive value. Omit the "$" sign in your response.)

Explanation / Answer

Bath Kitchen Total Sales =3080000*(1-16%) 0 2587200 2587200 Variable Expense =948000*(1-16%) 0 796320 796320 Contribution 0 1790880 1790880 Fixed Expense =1440000 378000 1440000 1818000 Net Operating Loss 350880 -27120 Decrease In net operating income +555000+27120 582120

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