A retail company has two departments, Womenswear and Menswear. A recent monthly income statement for the company follows: Department . Total Womenswear Menswear Sales $3,200,000 $2,300,000 $900,000 Less variable expenses 2,100,000 1,500,000 600,000 Contribution margin 1,100,000 800,000 300,000 Less fixed expenses 890,000 550,000 340,000 Net income (loss) $ 210,000 $250,000 $(40,000) A study indicates that $90,000 of the fixed expenses being charged to the Menswear department are sunk costs and allocated costs that will continue even if Menswear is dropped. In addition, the elimination of the Menswear department will result in a 15 percent decrease in the sales of the Womenswear department. If the Menswear department is dropped, what will be the effect on the income of the company as a whole? a. $395,000 increase b. $395,000 decrease c. $170,000 increase d. $170,000 decrease
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