Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bed & Bath, a retailing company, has two departmentsHardware and Linens. The companys most recent monthly contribution format income statement follows: Total Department Hardware Linens

Bed & Bath, a retailing company, has two departmentsHardware and Linens. The companys most recent monthly contribution format income statement follows:

Total Department
Hardware Linens
Sales $ 4,250,000 $ 3,110,000 $ 1,140,000
Variable expenses 1,359,000 949,000 410,000
Contribution margin 2,891,000 2,161,000 730,000
Fixed expenses 2,200,000 1,360,000 840,000
Net operating income (loss) $ 691,000 $ 801,000 $ (110,000)

A study indicates that $379,000 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 16% decrease in the sales of the Hardware Department.

Required:

What is the financial advantage (disadvantage) of discontinuing the Linens Department?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions

Question

understand the meaning of the terms discipline and grievance

Answered: 1 week ago