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10 Bed & Bath, a retailing company, has two departmentsHardware and Linens. The company's most recent monthly contribution format income statement follows: Print Sales Variable
10 Bed & Bath, a retailing company, has two departmentsHardware and Linens. The company's most recent monthly contribution format income statement follows: Print Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Total $ 4,340,000 1,365,000 2,975,000 2,200,000 $ 775,000 Department Hardware Linens $ 3,190,000 $ 1,150,000 946,000 419,000 2,244,000 731,000 1,350,000 850,000 $ 894,000 $ (119,000) A study indicates that $375,000 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 14% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department
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