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

Question

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 $375,000 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 13% decrease in the sales of the Hardware Department.

Required:

What is the financial advantage (disadvantage) of discontinuing the Linens Department?

Department Total Hardware Linens Sales $ 4,150,000 $ 3,140,000 $ 1,010,000 Variable expenses 1,277,000 867,000 410,000 Contribution margin 2,873,000 2,273,000 600,000 Fixed expenses 2,300,000 1,430,000 870,000 Net operating income (loss) $ 573,000 $ 843,000 $ (270,000 )

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up   Statementshowing Computations Paticulars Hardware   Linen Total Sales        3,140,000.00        1,010,000.00           4,150,000.00 Less Variable Expenses            867,000.00           410,000.00           1,277,000.00 Contribution Margin        2,273,000.00           600,000.00           2,873,000.00 Fixed cost        1,430,000.00           870,000.00           2,300,000.00 Net operating income (Loss)            843,000.00         (270,000.00)               573,000.00 if the Linens Department is dropped Paticulars Hardware   Linen Total Sales=3140000*.87        2,731,800.00           2,731,800.00 Less Variable Expenses=867000*.87            754,290.00               754,290.00 Contribution Margin        1,977,510.00                             -             1,977,510.00 Fixed cost        1,430,000.00           375,000.00           1,805,000.00 Net operating income (Loss)            547,510.00         (375,000.00)               172,510.00 If Linen is conitnued - Overall Profit            573,000.00 If Linen is disconitnued - Overall Profit            172,510.00 Net financial disadvantage of discontinuing         (400,490.00) Hence company should continue Linen

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.