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E-8 Boyle's Home Center, a retailing company, has two departments, Bath and Kitchen. The company's most recent monthly contribution format income statement follows: Total Sales Variable expenses. Contribution margin Fixed expenses. Bath .$5,000,000 $1,000,000 1,900,000 3,100,000 Department 2,700,000 300,000 700,000 900,000 Kitchen $4,000,000 1,600,000 2,400,000 1,800,000 Net operating income (loss) .$ 400,000 $ (200,000) $ 600,000 A study indicates that $370,000 of the fixed expenses being charged to the Bath Department are sunk costs or allocated costs tha will continue even if the Bath Department is dropped. In addition, the elimination of the Bath Department would result in a 10% decrease in the sales of the Kitchen Department. Required: If the Bath Department is dropped, what will be the effect on the net operating income of the company as a whole?

E-8 Boyle's Home Center, a retailing company, has two departments, Bath and Kitchen. The company's most recent monthly contribution format income statement follows: Total Sales Variable expenses. Contribution margin Fixed expenses. Bath .$5,000,000 $1,000,000 1,900,000 3,100,000 Department 2,700,000 300,000 700,000 900,000 Kitchen $4,000,000 1,600,000 2,400,000 1,800,000 Net operating income (loss) .$ 400,000 $ (200,000) $ 600,000 A study indicates that $370,000 of the fixed expenses being charged to the Bath Department are sunk costs or allocated costs tha will continue even if the Bath Department is dropped. In addition, the elimination of the Bath Department would result in a 10% decrease in the sales of the Kitchen Department. Required: If the Bath Department is dropped, what will be the effect on the net operating income of the company as a whole?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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E-8 Boyle's Home Center, a retailing company, has two departments, Bath and Kitchen. The company's most recent monthly contribution format income statement follows: Total Sales Variable expenses Contribution margin Fixed expenses. Bath $5,000,000 $1,000,000 1,900,000 Department . 3,100,000 2,700,000 300,000 700,000 900,000 Kitchen $4,000,000 1,600,000 2,400,000 1,800,000 Net operating income (loss) .$ 400,000 $ (200,000) $ 600,000 A study indicates that $370,000 of the fixed expenses being charged to the Bath Department are sunk costs or allocated costs that will continue even if the Bath Department is dropped. In addition, the elimination of the Bath Department would result in a 10% decrease in the sales of the Kitchen Department. Required: If the Bath Department is dropped, what will be the effect on the net operating income of the company as a whole?
Transcribed Image Text:E-8 Boyle's Home Center, a retailing company, has two departments, Bath and Kitchen. The company's most recent monthly contribution format income statement follows: Total Sales Variable expenses Contribution margin Fixed expenses. Bath $5,000,000 $1,000,000 1,900,000 Department . 3,100,000 2,700,000 300,000 700,000 900,000 Kitchen $4,000,000 1,600,000 2,400,000 1,800,000 Net operating income (loss) .$ 400,000 $ (200,000) $ 600,000 A study indicates that $370,000 of the fixed expenses being charged to the Bath Department are sunk costs or allocated costs that will continue even if the Bath Department is dropped. In addition, the elimination of the Bath Department would result in a 10% decrease in the sales of the Kitchen Department. Required: If the Bath Department is dropped, what will be the effect on the net operating income of the company as a whole?
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