Question
Bed & Bath, a retailing company , has two departments - Hardware and Linens . The company's most recent monthly contribution format income statement follows
Bed & Bath, a retailing company , has two departments - Hardware and Linens . The company's most recent monthly contribution format income statement follows : Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss ) Department Total Hardware Linens 4,170,000 $ 848 000 406,000 2,232,000 684) 2,310,000 1,440,000 $ , 792, ( 186,000 A study indicates that $372,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even the Linens Department is dropped In addition the elimination of the Linens Department will result a 16% decrease in the sales of the Hardware Department Required: What is the financial advantage ( disadvantage ) of discontinuing the Linens Department ?
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