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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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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 $ 4,080,000 1,235,000 2,845,000 2,230,000 $ 615,000 $ 3,050,000 828,000 $ 1,030,000 407,000 623,000 Sales Variable expenses Contribution margin 2,222,000 1,340,000 $ 882,000 Fixed expenses 890,000 Net operating income (loss) $ (267,000) A study indicates that $373,000 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 12% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?
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: Department Total Hardware Linens $ 4,080,000 1,235,000 2,845,000 2,230,000 $ 615,000 $ 3,050,000 828,000 $ 1,030,000 407,000 623,000 Sales Variable expenses Contribution margin 2,222,000 1,340,000 $ 882,000 Fixed expenses 890,000 Net operating income (loss) $ (267,000) A study indicates that $373,000 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 12% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?
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