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FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Hardware Sales Total Linens Variable expenses Contribution margin Fixed expenses Net operating income (loss) Department $ 3,100,000 $4,250,000 1,324,000 2,926,000 2,189,000 2,260,000 1,380,000 $ 666,000 $ 809,000 $ (143,000) A study indicates that $372,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 14% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? $ 1,150,000 911,000 413,000 737,000 880,000
Transcribed Image Text:Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Hardware Sales Total Linens Variable expenses Contribution margin Fixed expenses Net operating income (loss) Department $ 3,100,000 $4,250,000 1,324,000 2,926,000 2,189,000 2,260,000 1,380,000 $ 666,000 $ 809,000 $ (143,000) A study indicates that $372,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 14% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? $ 1,150,000 911,000 413,000 737,000 880,000
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