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Bed & Bath, a retailing company, has two departmentsHardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Contribution margin Fixed expenses Department Total Hardware Linens $ 4,150,000 $3,080,000 $ 1,070,000 1,344,000 926,000 418,000 2,806,000 2,154,000 652,000 2,330,000 1,430,000 900,000 $ 476,000 $ 724,000 $ (248,000) Net operating income (loss) A study indicates that $373,000 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 12% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantage) Financial advantage Futura Company purchases the 74,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.50 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $12.10 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit Total $ 5.00 2.80 1.90 $140,600 1.40 $ 103,600 0.70 0.30 $ 22,200 $ 12.10 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $140,600) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $86,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 74,000 starters instead of buying them from an outside supplier? Financial advantage Financial (disadvantage)