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 Sales $ 4,200,000 $ 3,060,000 $ 1,140,000 Variable expenses 1,277,000 859,000 418,000 Contribution margin 2,923,000 2,201,000 722,000 Fixed expenses 2,300,000 1,490,000 810,000 Net operating income (loss) $4 623,000 $ 711,000 $ (88,000) 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 15% 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: Department Total Hardware Linens Sales $ 4,200,000 $ 3,060,000 $ 1,140,000 Variable expenses 1,277,000 859,000 418,000 Contribution margin 2,923,000 2,201,000 722,000 Fixed expenses 2,300,000 1,490,000 810,000 Net operating income (loss) $4 623,000 $ 711,000 $ (88,000) 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 15% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantage)
Chapter1: Financial Statements And Business Decisions
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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:
Department
Total
Hardware
Linens
Sales
$ 4,200,000 $ 3,060,000 $ 1,140,000
Variable expenses
1,277,000
859,000
418,000
Contribution margin
2,923,000
2, 201,000
722,000
Fixed expenses
2,300,000
1,490,000
810,000
Net operating income (loss)
$
623,000 $
711,000 $
(88,000)
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 15% decrease in the
sales of the Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
Financial (disadvantage)
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