Exercise 13-17 (Algo) Dropping or Retaining a Segment [LO13-2]Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contributionformat income statement follows:DepartmentTotalHardwareLinens$ 4,130,0001,380,0002,750,000$ 3,040,000973,0002,067,000$ 1,090,000407,000SalesVariable expensesContribution marginFixed expenses683,000870,0001,350,000$ 717,0002,220,000Net operating income (loss)$ 530,000$ (187,000)A study indicates that $379,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that willcontinue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 11%decrease in the sales of the Hardware Department.Required:What is the financial advantage (disadvantage) of discontinuing the Linens Department?

Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Department Total Hardware Linens $ 4,130,000 1,380,000 2,750,000 2,220,000 $ 3,040,000 973,000 2,067,000 1,350,000 $ 717,000 $ 1,090,000 407,000 683,000 870,000 Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) $ 530,000 $ (187,000) A study indicates that $379,000 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 11% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?

Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Department Total Hardware Linens $ 4,130,000 1,380,000 2,750,000 2,220,000 $ 3,040,000 973,000 2,067,000 1,350,000 $ 717,000 $ 1,090,000 407,000 683,000 870,000 Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) $ 530,000 $ (187,000) A study indicates that $379,000 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 11% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?

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 Net operating income (loss) Fixed expenses Total $ 4,290,000 1,286,000 3,004,000 2,370,000 $ 634,000 Department Linens $ 1,190,000 418,000 772,000 880,000 Hardware $ 3,100,000 868,000 2,232,000 1,490,000 $ 742,000 $ (108,000) A study indicates that $377,000 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 13% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantage) $ 390,100
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