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 $ 4,140,000 1,283,000 2,857,000 2,250,000 $ 607,000 Hardware $ 3,020,000 863,000 Department Linens $ 1,120,000 420,000 700,000 890,000 $ (190,000) 2,157,000 1,360,000 $ 797,000 A study indicates that $380,000 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 12% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company's costing system and "do what you can to help us get better control of our manufacturing overhead costs." You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control. After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March: Utilities Maintenance Supplies Indirect labor Depreciation Cost Formula $16,100 $0.14 per machine-hour $38,000 +$1.30 per machine-hour $0.80 per machine-hour $94,200 +$1.80 per machine-hour $67,600 Actual Cost in March $ 20,420 $ 55,200 $14,200 $127,500 $ 69,300 During March, the company worked 16,000 machine-hours and produced 10,000 units. The company had originally planned to work 18,000 machine-hours during March Required: 1. Prepare a flexible budget for March. 2. Prepare a report showing the spending variances for March.