exersize 13-17 (Algo) Dropping or retaining a segment

Exercise 13-17 (Algo) Dropping or Retaining a Segment (LO13-2) 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 $ 4,270,000 1,277.000 2,993,800 2,290,000 $ 703,eee Department Hardware Linens $ 3,990,000 5 1,180,000 864,000 413,000 2,226,000 767,000 1,470.000 820,00 $ 756,000 $ (53,000) 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 cropped. In addition, the elimination of the Linens Department will result in a 20% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantage)