imperial jewelers Bed & Bath, a retailing company, has two departments Hardware
ID: 2580556 • Letter: I
Question
imperial jewelers Bed & Bath, a retailing company, has two departments Hardware and Linens The company's most recent monthly contribution format 4 follows Sales Contribution nargin Net operatingi S4,260, 000 $3,140,000 $1,120,000 824, 000 414,000 1,238, 000 3,022, 00 2,316,000 706,00 2,290,000 1,410, 000 880,000 (losa) S 732,000 906, 00D (174,000) A study indicates that $371,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will even 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 What is the financial advantage (disadvantage) of discontinuing the Linens Department?Explanation / Answer
ans)
Contribution margin lost if the linen department is dropped:
Lost from the linens department 706,000
Lost from the Haedware department ( (2,316,000 X 18%) 416880
Total lost contribution margin 1122880
Less: fixed cost that can be avoided(880,000 - 371000) (509000)
Decrease in profits for the company as a whole 613880
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