Bed & Bath, a retailing company, has two departments, Hardware and Linens. The c

Question

Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows: Total Hardware Linens Sales Variable expenses Contribution margin Fixed expenses Nel opo(k)2,000 S 851.000 $4,250,000 $3,180,000 $ 1,070,000 1,288,000 879,000 409,000 2,962,000 2,301,000 661,000 2,310,000 1,450,000 860,000 (199.000) 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 16% 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? in net operating income

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Existing Total If Linen is dropped Differential Sales If Linen is dropped = 3180000*0.84                  4,250,000.00                  2,671,200.00           1,578,800.00 Less Variable Expenses If Linen is dropped = 879000*0.84               (1,288,000.00)                   (738,360.00)            (549,640.00) Contribution Margin= Sales - VC                  2,962,000.00                  1,932,840.00           1,029,160.00 Fixed cost If Linen is dropped = 1450,000+373,000               (2,310,000.00)               (1,823,000.00)            (487,000.00) Net operating income= Cont- FC                     652,000.00                     109,840.00              542,160.00 If the linen is dropped net operating income will decrease by 542,160

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