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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 $ 4,240,000 $ 3,050,000 $ 1,190,000 Variable expenses 1,273,000 868,000 405,000 Contribution margin 2,967,000 2,182,000 785,000 Fixed expenses 2,340,000 1,500,000 840,000 Net operating income (loss) $ 627,000 $ 682,000 $ (55,000) 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 16% decrease in the sales of the Hardware Department. Required: What is the total financial impact of discontinuing the Linens Department? (See below if you need a hint.)

Hints: (1) Remember that if sales drop in the Hardware department, this will impact both sales revenue and variable costs; (2) In regard to the fixed costs in the Linens Dept., remember that you need to account for what can be saved (i.e., what changes) in your analysis, not what remains; (3) Example 11-2b is a similar problem.

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