PLEASE ANSWER ALL PARTS, PLEASE & THANK YOU! Bed & Bath, a retailing company, ha
ID: 2479031 • Letter: P
Question
PLEASE ANSWER ALL PARTS, PLEASE & THANK YOU!
Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows: A study indicates that dollar377,000 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: If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole?__________________Explanation / Answer
Net Operating Income, if Linens Department is dropped:
*Variable cost ratio = 960,000/3,190,000 = 30.09%
Total Net operating income if Linens continues= $675,000
Total Net Operting Income if Linens Drops= $81,600
Decrease in net Operating income $593,400
Departments Hardware Linens Total 1) Sales (82%) $2,615,800 ----- $2,615,800 2) Variable costs* $787,200 ------ $787,200 3) Contribution(1-30.09%) $1,828,600 --- $1,828,600 4) Fixed Expenses($2,210,000 - 463,000) $1,747,000 5) Net Operating Income $ 81,600Related Questions
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