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 $ 4,200,000 1,358,000 2,842,000 2,300,000 $ 542,000 Department Hardware $ 3,100,000 Linens $ 1,100,000 419,000 681,000 850,000 939,000 2,161,000 1,450,000 $ 711,000 $ (169,000) A study indicates that $378,000 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: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Total $ 4,200,000 1,358,000 2,842,000 2,300,000 $ 542,000 Department Hardware $ 3,100,000 Linens $ 1,100,000 419,000 681,000 850,000 939,000 2,161,000 1,450,000 $ 711,000 $ (169,000) A study indicates that $378,000 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
Section: Chapter Questions
Problem 1Q
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answer must be in table format or i will give down vote
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
$ 4,200,000
1,358,000
2,842,000
2,300,000
$ 542,000
Department
Hardware
$ 3,100,000
Linens
$ 1,100,000
419,000
681,000
850,000
939,000
2,161,000
1,450,000
$ 711,000
$ (169,000)
A study indicates that $378,000 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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