Dropping or Retaining a Segment [LO1 CC3]

Bed & Bath, a retailing company, has two departments: hardware and linens. A recent monthly income statement for the company follows:

	Department
	Hardware	Linens	Total
Sales	$3,000,000	$1,000,000	$4,000,000
Less: Variable expenses	900,000	400,000	1,300,000
Contribution margin	2,100,000	600,000	2,700,000
Less: Fixed expenses	1,400,000	800,000	2,200,000
Net operating income (loss)	$ 700,000	$ (200,000)	$ 500,000

A study indicates that $240,000 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 20% 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?