Luxury Linens Has Three Departments: Bath, Kitchen, and Bedding Based on This Income Statement, Management Is Considering Eliminating the Most

Luxury Linens has three departments: Bath, Kitchen, and Bedding. The most recent income statement, showing the total operating profit and departmental results is shown below:
$$\begin{array} { | l | r | r | r | r | } \hline &\underline{ { \text { Total } }} & \underline{{ \text { Bath } }} &\underline{{ \text { Kitchen }} } &\underline{ { \text { Bedding } } }\\ \hline \text { Sales } & \$ 2,100,000 & \$ 1,000,000 & \$ 500,000 & \$ 600,000 \\\hline \text { Cost of goods sold } &\underline{ ( 1,260,000 ) }&\underline{ ( 500,000 ) }&\underline{ ( 360,000 ) }& \underline{( 400,000 )} \\\hline \text { Gross profit } & 840,000 & 500,000 & 140,000 & 200,000 \\\hline \text { Direct expenses } & ( 420,000 ) & ( 200,000 ) & ( 120,000 ) & ( 100,000 ) \\\hline \text { Allocated expenses } & \underline{( 325,000 )} &\underline{ ( 100,000 ) }&\underline{( 150,000 )} &\underline{ ( 75,000 ) }\\\hline \text { Net income (loss) } &\underline{ \$ 95,000} &\underline{ \$ 200,000 }& \underline{\$ ( 130,000 )} &\underline{ \$ 25,000} \\\hline\end{array}$$ Based on this income statement, management is considering eliminating the Kitchen department. If the Kitchen department is eliminated, the other departments will expand to fill the space but sales are not expected to change. Twenty percent of Kitchen's allocated expenses will be avoided due to restructuring and the remainder reallocated equally to Bath and Bedding. Show an analysis indicating whether the Kitchen department should be eliminated.

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