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 $4,000,000 1,300,000 2,700,000 2,200,000 $500,000 Department Hardware $3,000,000 900,000 2,100,000 1,400,000 $700,000 Linens $ 1,000,000 400,000 600,000 800,000 $(200,000) A study indicates that $340,000 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 10% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?
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 $4,000,000 1,300,000 2,700,000 2,200,000 $500,000 Department Hardware $3,000,000 900,000 2,100,000 1,400,000 $700,000 Linens $ 1,000,000 400,000 600,000 800,000 $(200,000) A study indicates that $340,000 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 10% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Exercise 11-17 (Static) Dropping or Retaining a Segment [LO11-2]
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
$ 4,000,000
1,300,000
2,700,000
2,200,000
$ 500,000
Department
Linens
Hardware
$3,000,000 $1,000,000
900,000
2,100,000
1,400,000
$ 700,000 $ (200,000)
400,000
600,000
800,000
A study indicates that $340,000 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 10% decrease in the
sales of the Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F569aa9ef-76db-41a4-88e9-376c0d052363%2Fd855e313-0274-44c0-90b0-4b3c488a12ba%2Fodmjktp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 11-17 (Static) Dropping or Retaining a Segment [LO11-2]
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
$ 4,000,000
1,300,000
2,700,000
2,200,000
$ 500,000
Department
Linens
Hardware
$3,000,000 $1,000,000
900,000
2,100,000
1,400,000
$ 700,000 $ (200,000)
400,000
600,000
800,000
A study indicates that $340,000 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 10% decrease in the
sales of the Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
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