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Boyle Home Center

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

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

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

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