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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: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Total $ 4,150,000 1,335,000 2,815,000 2,220,000 $ 595,000 Financial (disadvantage) Department Hardware $ 3,070,000 916,000 2,154,000 1,330,000 $ 824,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? A study indicates that $374,000 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 Hardware Department. Linens $ 1,080,000 419,000 661,000 890,000 $ (229,000)

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 $ 4,150,000 1,335,000 2,815,000 2,220,000 $ 595,000 Financial (disadvantage) Department Hardware $ 3,070,000 916,000 2,154,000 1,330,000 $ 824,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? A study indicates that $374,000 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 Hardware Department. Linens $ 1,080,000 419,000 661,000 890,000 $ (229,000)

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: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Total $ 4,150,000 1,335,000 2,815,000 2,220,000 $ 595,000 Financial (disadvantage) Department Hardware $ 3,070,000 916,000 2,154,000 1,330,000 $824,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? A study indicates that $374,000 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 Hardware Department. Linens $ 1,080,000 419,000 661,000 890,000 $ (229,000)
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: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Total $ 4,150,000 1,335,000 2,815,000 2,220,000 $ 595,000 Financial (disadvantage) Department Hardware $ 3,070,000 916,000 2,154,000 1,330,000 $824,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? A study indicates that $374,000 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 Hardware Department. Linens $ 1,080,000 419,000 661,000 890,000 $ (229,000)
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