Contribution margin lost if the Linens Department is dropped:
Lost from the Linens Department..........................................
Lost from the Hardware Department ....................................
Total lost contribution margin...................................................
Fixed costs that can be avoided ..............................................
Financial (disadvantage) of discontinuing the Linens Department...........................................................................

EXERCISE 12-17 Dropping or Retaining a Segment L012-2 Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Department Total Hardware Linens Sales .......... Variable expenses ....... Contribution margin ......... Fixed expenses. Net operating income (loss) ...... $4,000,000 1,300,000 2,700,000 2,200,000 $ 500,000 $3,000,000 900,000 2,100,000 1,400,000 $ 700,000 $1,000,000 400,000 600,000 800,000 $ (200,000) A study indicates that $340,000 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 10% decrease in the sales of the Hardware Department. Required: no n o What is the financial advantage (disadvantage) of discontinuing the Linens Department