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) Total $ 4,260,000 1,288,000 2,972,000 2,240,000 $ 732,000 Department Hardware $ 3,100,000 887,000 2,213,000 1,420,000 $ 793,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Linens $ 1,160,000 401,000 759,000 820,000 $ (61,000) A study indicates $378,000 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 13% decrease in the sales of the Hardware Department.

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) Total $ 4,260,000 1,280,000 2,972,000 2,240,000 $732,000 Hardware $ 3,100,000 Department Linens $1,160,000 401,000 759,000 $20,000 887,000 2,213,000 1,420,000 $ 793,000 $ (61,000) A study indicates $378,000 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 13% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?