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 1,374,000 2,916,000 2,210,000 $ 706,000 Department Hardware Linens $ 3,160,000 $ 1,130,000 954,000 2,206,000 1,320,000 420,000 710,000 890,000 $ 886,000 $ (180,000) 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 14% 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 Net operating income (loss) Fixed expenses Total $ 4,290,000 1,374,000 2,916,000 2,210,000 $ 706,000 Department Hardware Linens $ 3,160,000 $ 1,130,000 954,000 2,206,000 1,320,000 420,000 710,000 890,000 $ 886,000 $ (180,000) 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 14% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantage) _
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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: 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 14% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantage)
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
Net operating income (loss)
Fixed expenses
Total
$ 4,290,000
1,374,000
2,916,000
2,210,000
$ 706,000
Department
Hardware
Linens
$ 3,160,000
$ 1,130,000
954,000
2,206,000
1,320,000
420,000
710,000
890,000
$ 886,000
$ (180,000)
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 14% 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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