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 $ 4,090,000 1,361,000 2,729,000 2,240,000 $ 489,000 Financial (disadvantage) Department Hardware $ 3,060,000 951,000 2,109,000 1,340,000 $ 769,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? 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 13% decrease in the sales of the Hardware Department. Linens $ 1,030,000 410,000 620,000 900,000 $ (280,000)

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 $ 4,090,000 1,361,000 2,729,000 2,240,000 $ 489,000 Financial (disadvantage) Department Hardware $ 3,060,000 951,000 2,109,000 1,340,000 $ 769,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? 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 13% decrease in the sales of the Hardware Department. Linens $ 1,030,000 410,000 620,000 900,000 $ (280,000)

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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Question

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
$ 4,090,000
1,361,000
2,729,000
2,240,000
$ 489,000
Financial (disadvantage)
Department
Hardware
$ 3,060,000
951,000
2,109,000
1,340,000
$ 769,000
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
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 13% decrease in the
sales of the Hardware Department.
Linens
$ 1,030,000
410,000
620,000
900,000
$ (280,000)

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