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 $ 4,280,000 1,387,000 12.893,000 2,290,000 $ 603,000 Hardware $ 3,080,000 Department Linens $ 1,200,000 408,000 792,000 870,000 $ (78,000) 979,000 2,101,000 1,420,000 $ 681,000 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 18% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantage)

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 $ 4,280,000 1,387,000 12.893,000 2,290,000 $ 603,000 Hardware $ 3,080,000 Department Linens $ 1,200,000 408,000 792,000 870,000 $ (78,000) 979,000 2,101,000 1,420,000 $ 681,000 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 18% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantage)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 30E: A company uses charging rates to allocate service department costs to the using departments. The...

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