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

 

 

 

Department

 

Total

Hardware

Linens

  Sales

$4,160,000  

$3,160,000  

$1,000,000   

  Variable expenses

1,403,000  

996,000  

407,000   

  Contribution margin

2,757,000  

2,164,000  

593,000   

  Fixed expenses

2,270,000  

1,470,000  

800,000   

  Net operating income (loss)

$487,000  

$694,000  

$(207,000)  

 

A study indicates that $377,000 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 12% 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.)

 

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