Anderson Document Services, a document creation and copying company, has two departments, Design and Copying. The company€™s most recent monthly contribution format income statement follows:

A study indicates that $14,000 of the fixed expenses being charged to the Design Department are sunk costs or allocated costs that will continue even if the Design Department is dropped. In addition, the elimination of the Design Department would result in a 5% decrease in the sales of the Copying Department.
Required:
If the Design Department is dropped, what will be the effect on the operating income of the company as a whole? Should the Design Department be dropped?

Department Design Copying $200,000 120,000 80,000 18,000 Total $400,000 250,000 150,000 50,000 Sales Variable expenses. Contribution margin. Fixed expenses..... Operating income (loss).. $75,000 50,000 25,000 30,000 $(5,000) $ 10,000 $ 62,000