Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Total $ 4,110,000 1,337,000 2,773,000 2,370,000 $ 403,000 Department Hardware $ 3,100,000 Linens $ 1,010,000 932,000 2,168,000 1,490,000 405,000 $ 678,000 605,000 880,000 $ (275,000) A study indicates $376,000 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 12% decrease in the sales of the Hardware Department.
Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Total $ 4,110,000 1,337,000 2,773,000 2,370,000 $ 403,000 Department Hardware $ 3,100,000 Linens $ 1,010,000 932,000 2,168,000 1,490,000 405,000 $ 678,000 605,000 880,000 $ (275,000) A study indicates $376,000 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 12% decrease in the sales of the Hardware Department.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:
Sales
Variable expenses
Fixed expenses
Contribution margin
Net operating income (loss)
Total
$ 4,110,000
1,337,000
2,773,000
2,370,000
$ 403,000
Department
Hardware
$ 3,100,000
Linens
$ 1,010,000
932,000
2,168,000
1,490,000
405,000
605,000
880,000
$ 678,000
$ (275,000)
A study indicates $376,000 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 12% decrease in the sales of the
Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
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