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 $ 4,260,000 1,401,000 2,959,000 2,210,000 $ 649,000 Department Hardware $ 3,160,000 996,000 2,164,000 1,330,000 $ 834,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Linens $1,100,000 405,000 695,000 880,000 $ (185,000) A study indicates that $380,000 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.
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 $ 4,260,000 1,401,000 2,959,000 2,210,000 $ 649,000 Department Hardware $ 3,160,000 996,000 2,164,000 1,330,000 $ 834,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Linens $1,100,000 405,000 695,000 880,000 $ (185,000) A study indicates that $380,000 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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
$ 4,260,000
1,401,000
2,959,000
2,210,000
$ 649,000
Department
Hardware
$ 3,160,000
996,000
2,164,000
1,330,000
$ 834,000
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
Linens
$ 1,100,000
405,000
695,000
880,000
$(185,000)
A study indicates that $380,000 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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fddad5d86-091d-4493-90be-ef5753132bfd%2F49570daf-205b-4d76-a32f-5c7feb241370%2F0fk9s_processed.jpeg&w=3840&q=75)
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
$ 4,260,000
1,401,000
2,959,000
2,210,000
$ 649,000
Department
Hardware
$ 3,160,000
996,000
2,164,000
1,330,000
$ 834,000
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
Linens
$ 1,100,000
405,000
695,000
880,000
$(185,000)
A study indicates that $380,000 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.
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