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Bed & Bath, a retailing company, has two departments: hardware and linens. A recent monthly income statement for the company follows: New Income Statement Department
Bed & Bath, a retailing company, has two departments: hardware and linens. A recent monthly income statement for the company follows: New Income Statement Department Department Hardware Linens Total Hardware Linens Total Sales $ $ $ Sales Less: Variable expenses Less: Variable expenses Contribution margin Contribution margin Less: Fixed expenses Less: Fixed expenses Operating income loss $$ $ Operating income loss A study indicates that $ of the fixed expenses being charged to linens are sunk costs or allocated costs that will continue even if the linens department is dropped. In addition, the elimination of the linens department will result in a decrease in the sales of the hardware department. Required: If the linens department is dropped, what will be the effect on the net operating income of the company as a whole? List Lost contribution margin: Contribution margin Hardware department: Linens department: Percentage Sunk fixed expenses Total fixed expenses Total lost contribution margin: Fixed expenses savedavoided: Total fixed expenses savedavoided Net increase decrease in net operating income List Decision: Drop the Linens department Keep the Linens department
Bed & Bath, a retailing company, has two departments: hardware and linens. A recent monthly income statement for the company follows:
New Income Statement
Department Department
Hardware Linens Total Hardware Linens Total
Sales $ $ $ Sales
Less: Variable expenses Less: Variable expenses
Contribution margin Contribution margin
Less: Fixed expenses Less: Fixed expenses
Operating income loss $$ $ Operating income loss
A study indicates that $ 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 decrease in the sales of the hardware department.
Required:
If the linens department is dropped, what will be the effect on the net operating income of the company as a whole?
List
Lost contribution margin: Contribution margin
Hardware department:
Linens department:
Percentage
Sunk fixed expenses
Total fixed expenses
Total lost contribution margin:
Fixed expenses savedavoided:
Total fixed expenses savedavoided
Net increase decrease in net operating income
List
Decision: Drop the Linens department
Keep the Linens department
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