Accounting Question........Relevant Cost for Decison Making!?

Question

has two departments, Bath and Kitchen. The company's most recent monthly contribution format income statement follows:
Department
Total Bath Kitchen
Sales $ 5,000,000 $ 1,000,000 $ 4,000,000
Variable expenses 1,900,000 300,000 1,600,000
Contribution margin 3,100,000 700,000 2,400,000
Fixed expenses 2,700,000 900,000 1,800,000
Net operating income (loss) $ 400,000 $ (200,000 ) $ 600,000

A study indicates that $370,000 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 10% decrease in the sales of the Kitchen Department.

Required:
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 positive value. Omit the "$" sign in your response.)
__________ in overall net operating income $ ____________

Answer 1

I won't give you the answer, but I will define 'relevant cost'. If the cost is the same for both options, it is NOT relevant. If the cost is different for one option than for the other, it IS relevant. Given that, you should be able to find the answer yourself. If you can't do your own homework, you should not pass your accounting class.