Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company’s most recentmonthly contribution format income statement follows:DepartmentTotal Hardware LinensSales ................................................ $4,000,000 $3,000,000 $1,000,000Variable expenses ........................... 1,300,000 900,000 400,000Contribution margin .......................... 2,700,000 2,100,000 600,000Fixed expenses ................................ 2,200,000 1,400,000 800,000Net operating income (loss) ............. $ 500,000 $ 700,000 $ (200,000)A study indicates that $340,000 of the fixed expenses being charged to Linens are sunk costs or allocatedcosts that will continue even if the Linens Department is dropped. In addition, the elimination of the LinensDepartment will result in a 10% decrease in the sales of the Hardware Department.Required:If the Linens Department is dropped, what will be the effect on the net operating income of the companyas a whole?
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 ................................................ $4,000,000 $3,000,000 $1,000,000
Variable expenses ........................... 1,300,000 900,000 400,000
Contribution margin .......................... 2,700,000 2,100,000 600,000
Fixed expenses ................................ 2,200,000 1,400,000 800,000
Net operating income (loss) ............. $ 500,000 $ 700,000 $ (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:
If the Linens Department is dropped, what will be the effect on the net operating income of the company
as a whole?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
