B&B, a retailer, has two departments: beds and linens. A recent monthly income statement for the company follows: Department Sales Less: Variable expenses Contribution margin Less: Fixed expenses Net operating income (loss) Beds Linens $3,000,000 $1,000,000 1000,000 2,000,000 1,400,000 Net operating income Total $4,000,000 1,400,000 by 400,000 600,000 800,000 $ 600,000 $ (200,000) $ 400,000 A study indicates that $240,000 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 20% decrease in the sales of the beds department. 2,600,000 2,200,000 Required: If the linens department is dropped, what will be the effect on the net operating income of the company as a whole?
B&B, a retailer, has two departments: beds and linens. A recent monthly income statement for the company follows: Department Sales Less: Variable expenses Contribution margin Less: Fixed expenses Net operating income (loss) Beds Linens $3,000,000 $1,000,000 1000,000 2,000,000 1,400,000 Net operating income Total $4,000,000 1,400,000 by 400,000 600,000 800,000 $ 600,000 $ (200,000) $ 400,000 A study indicates that $240,000 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 20% decrease in the sales of the beds department. 2,600,000 2,200,000 Required: If the linens department is dropped, what will be the effect on the net operating income of the company as a whole?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:B&B, a retailer, has two departments: beds and linens. A recent monthly income statement for the company follows:
Department
Sales
Less: Variable expenses
Contribution margin
Less: Fixed expenses
Net operating income (loss)
Beds
Linens
$3,000,000 $1,000,000
1000,000
Net operating income
by
Total
$4,000,000
1,400,000
400,000
600,000
800,000
$ 600,000 $ (200,000) $ 400,000
2,000,000
1,400,000
A study indicates that $240,000 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 20% decrease in the sales
of the beds department.
2,600,000
2,200,000
Required:
If the linens department is dropped, what will be the effect on the net operating income of the company as a whole?
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