4 value: 10.00 points Bed & Bath, a retailing company, has two departments, Hard

Question

4 value: 10.00 points Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows rtment Total Linens Sales Variable expenses Hardware $4,280,000 $3,100,000 $1,180,000 1,378,000 974,000 404,000 Contribution margin Fixed expenses 2,902,000 2,126,000 776,000 2,280,000 ,480,000 800,000 Net operating income (loss) S 622,000 S 646,000 S (24,000) 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 14% 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 o income

Explanation / Answer

Contribution margin ratio for Hardware=Contribution margin/Sales

=(2126000/3100000)=0.6858

New sales for Hardware=31,00,000*86%=$2,666,000

Hence new Contribution margin=(2,666,000*0.6858)=$1828360

Less:Fixed costs for Hardware=(1,480,000)

Less:Fixed costs for Linens=(373000)

New net operating income=$(24640)

Hence decrease =(622000+24640)=$646640.

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

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