Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution fo income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Total $ 4,290,000 1,306,000 2,984,000 2,160,000 $ 824,000 Financial (disadvantage) Department Hardware $ 3,110,000 899,000 2,211,000 1,350,000 $ 861,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? A study indicates that $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 14% decrease in the sales of the Hardware Department. Linens $ 1,180,000 407,000 773,000 810,000 $ (37,000)
Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution fo income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Total $ 4,290,000 1,306,000 2,984,000 2,160,000 $ 824,000 Financial (disadvantage) Department Hardware $ 3,110,000 899,000 2,211,000 1,350,000 $ 861,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? A study indicates that $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 14% decrease in the sales of the Hardware Department. Linens $ 1,180,000 407,000 773,000 810,000 $ (37,000)
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
Contribution margin
Fixed expenses
Net operating income (loss)
Total
$ 4,290,000
1,306,000
2,984,000
2,160,000
$ 824,000
Financial (disadvantage)
Department
Hardware
$ 3,110,000
899,000
2,211,000
1,350,000
$ 861,000
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
A study indicates that $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 14% decrease in the
sales of the Hardware Department.
Linens
$ 1,180,000
407,000
773,000
810,000
$ (37,000)
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