Analysis: The key to Decision Making EXERCISE 7-17 Dropping or Retaining a Segment [LO 7-2] Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows: Department Hardware Linens Total Sales.. Variable expenses Contribution margin... Fixed expenses. Net operating income (loss). $4,000,000 1,300,000 2,700,000 2,200,000 $ 500,000 $3,000,000 900,000 2,100,000 1,400,000 $ 700,000 $1,000,000 400,000 600,000 800,000 $ (200,000) + + A study indicates that $340,000 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 elimina- tion of the Linens Department will result in a 10% 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