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

Departments: Bath Kitchen

Sales: Total $ 4,220,000 Bath $ 1,070,000 Kitchen $3,150,000

Variable expenses: Total $1,326,000 Bath $415,000 Kitchen:$911,000

Contribution margin: Total: $2,894,000 Bath:$655,000 Kitchen $2,239,000

Fixed expenses: Total: $2,160,000 Bath: $860,000 Kitchen:$1,300,000

Net operating income (loss): Total: $ 734,000 bath: $ (205,000 ) Kitchen: $ 939,000

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 14% 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.)

in net operating income $

What I did:

Contribution Margin of Bath – (Contribution Margin of Kitchen*14%) to get total lost contribution margin = 655000 – 313460= 341540

Then I subtracted the less avoidable fixed costs ($860000 – 378000)= 482000

Then I subtract 341540 and 482000 = -140460.

This is decrease in overal net operating income $-140460.