Mushroom Company, a retail company, has two departments, "G" and "S". The company's most recent monthly contribution format income statement is presented below.

...................................Total..................................G...............................S
Sales....................... $ 6,000,000 ................$ 2,000,000 ............$ 4,000,000
Variable Expenses .......3,000,000.....................1,400,000 ................1,600,000
Contribution
Margin ........................3,000,000................. 600,000...................2,400,000
Fixed expenses ........1,800,000,......................800,000 .................1,000,000
Net operating
income (loss) ..............$1,200,000..................$(200,000)............$1,400,000

A study indicates that $350,000 of the fixed expenses being charged to "G" department are sunk costs, or allocated costs that will continue (that is the other department will have to absorb those costs) even if the "G" department is dropped. In addition, the elimination of the "G" department would result in
a 10% increase in the sales of the "S" department.

I have not a clue that is why I am looking for help

To determine the impact of dropping the "G" department on the company's net operating income, we need to evaluate the changes in sales, variable expenses, and fixed expenses.

1. Sales Impact:
The information states that dropping the "G" department will result in a 10% increase in the sales of the "S" department. Since the current sales of the "S" department are $4,000,000, a 10% increase would be $400,000. Therefore, the new sales for the "S" department would be $4,400,000 ($4,000,000 + $400,000).

2. Variable Expenses Impact:
The variable expenses for the "S" department are currently $1,600,000. Since the sales are increasing by $400,000, we can assume that the variable expenses will also increase proportionally. Therefore, the new variable expenses for the "S" department would be $1,760,000 ($1,600,000 + 10% of $1,600,000).

3. Fixed Expenses Impact:
Out of the total fixed expenses of $1,800,000, $350,000 is attributed to the "G" department and is considered sunk costs. Sunk costs are unavoidable and independent of any particular department. Therefore, dropping the "G" department will not affect these costs. The remaining fixed expenses of $1,450,000 ($1,800,000 - $350,000) will be allocated to the "S" department.

4. Contribution Margin:
To calculate the contribution margin for the "S" department, we subtract the variable expenses from the new sales figure: $4,400,000 - $1,760,000 = $2,640,000.

5. Net Operating Income:
Finally, we can calculate the net operating income by subtracting the new fixed expenses from the contribution margin: $2,640,000 - $1,450,000 = $1,190,000.

Therefore, dropping the "G" department and increasing the sales of the "S" department by 10% would result in a net operating income of $1,190,000.