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: Department Sales Variable expenses Total Hardware Linens $4,150,000 $3,080,000 $1,070,000 1,252,000 835,000 417,000 Contribution margin Fixed expenses 2,898,000 2,245,000 653,000 2,150,000 1,320,000 830,000 Net operating income (loss) $ 748,000 $ 925,000 $ (177,000) 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 15% 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 and please give thumbs up   Statementshowing Computations Paticulars Hardware Linen Total Sales             3,080,000.00             1,070,000.00      4,150,000.00 Less Variable Expenses               (835,000.00)               (417,000.00) (1,252,000.00) Contribution Margin             2,245,000.00                 653,000.00      2,898,000.00 Fixed cost           (1,320,000.00)               (830,000.00) (2,150,000.00) Net operating income                 925,000.00               (177,000.00)         748,000.00 If Linen is dropped Paticulars Hardware Linen Total Sales             2,618,000.00      2,618,000.00 Less Variable Expenses               (709,750.00)       (709,750.00) Contribution Margin             1,908,250.00                                   -        1,908,250.00 Fixed cost           (1,320,000.00)               (373,000.00) (1,693,000.00) Net operating income                 588,250.00               (373,000.00)         215,250.00 If Linen Department is dropped , net income will decrease by $532,750

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