Question
Bed & Bath, a retailing company, has two departments--Hardware and Linens. The company's most recent monthly contribution format income statement follows: Its eBook Print eferences
Bed & Bath, a retailing company, has two departments--Hardware and Linens. The company's most recent monthly contribution format income statement follows:
Its
eBook
Print
eferences
Department
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income (loss)
Total
$ 4,050,000
1,349,000
2,701,000
2,200,000
$ 501,000
Hardware
$ 3,010,000
941,000
2,069,000
1,390,000
$ 679,000
Linens
$ 1,040,000
408,000
632,000
810,000
$ (178,000)
A study indicates that $376,000 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 14% decrease in the sales of the Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
Bed \& Bath, a retaling company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: A study indicates that $376,000 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 14% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department
Bed & Bath, a retailing company, has two departments--Hardware and Linens. The company's most recent monthly contribution format income statement follows:
Its
eBook
eferences
Department
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income (loss)
Total
$ 4,050,000
1,349,000
2,701,000
2,200,000
$ 501,000
Hardware
$ 3,010,000
941,000
2,069,000
1,390,000
$ 679,000
Linens
$ 1,040,000
408,000
632,000
810,000
$ (178,000)
A study indicates that $376,000 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 14% decrease in the sales of the Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
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