Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly...

Transcribed Image Text:

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 Net operating income (loss) Fixed expenses Total $ 4,060,000 1,285,000 2,775,000 2,290,000 $ 485,000 Department Hardware $ 3,030,000 Linens $ 1,030,000 879,000 2,151,000 1,460,000 406,000 624,000 830,000 $ 691,000 $ (206,000) 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 18% 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: Sales Variable expenses Contribution margin Net operating income (loss) Fixed expenses Total $ 4,060,000 1,285,000 2,775,000 2,290,000 $ 485,000 Department Hardware $ 3,030,000 Linens $ 1,030,000 879,000 2,151,000 1,460,000 406,000 624,000 830,000 $ 691,000 $ (206,000) 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 18% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?