Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly contribution
Posted: Wed Apr 27, 2022 11:17 am
Bed & Bath, a retailing company, has two
departments—Hardware and Linens. The company’s most recent monthly
contribution format income statement follows: Total Department
Hardware Linens Sales $ 4,160,000 $ 3,030,000 $ 1,130,000 Variable
expenses 1,273,000 854,000 419,000 Contribution margin 2,887,000
2,176,000 711,000 Fixed expenses 2,180,000 1,350,000 830,000 Net
operating income (loss) $ 707,000 $ 826,000 $ (119,000) 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?
departments—Hardware and Linens. The company’s most recent monthly
contribution format income statement follows: Total Department
Hardware Linens Sales $ 4,160,000 $ 3,030,000 $ 1,130,000 Variable
expenses 1,273,000 854,000 419,000 Contribution margin 2,887,000
2,176,000 711,000 Fixed expenses 2,180,000 1,350,000 830,000 Net
operating income (loss) $ 707,000 $ 826,000 $ (119,000) 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?