Answer:
Net Operating Income will decrease by $503,080.
Explanation:
Sales of Hardware after 12% decrease will be $3,100,000 * 88% (100 - 12) = $2,728,000
Variable Expenses of Hardware after 12% decrease 891,000 * 88% (100 - 12) = $784,080
Net Operating Income of Hardware after 12% decrease = $623,920
The sunk cost for Linens fixed cost will be deducted to find the total of net operating income
$623,920 - $375,000 = $248,920
$248,920 is the net operating income after dropping Linens
The increase or decrease is calculated by finding the difference between current and old total net operating income
$248,920 - $752,000 = $503,080
