Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Fixed expenses Contribution margin Net operating income (loss) Total $ 4,150,000 1,406,000 2,744,000 2,320,000 $ 424,000 997,000 Department Hardware $ 3,150,000 Linens $ 1,000,000 409,000 591,000 890,000 $ (299,000) 2,153,000 1,430,000 $ 723,000 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 13% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format
income statement follows:
Sales
Variable expenses
Contribution margin
Net operating income (loss)
Fixed expenses
Total
$ 4,150,000
1,406,000
2,744,000
2,320,000
$ 424,000
Hardware
$ 3,150,000
Department
Linens
$ 1,000,000
409,000
591,000
890,000
$ (299,000)
997,000
2,153,000
1,430,000
$ 723,000
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 13% decrease in the
sales of the Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
Transcribed Image Text:Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Contribution margin Net operating income (loss) Fixed expenses Total $ 4,150,000 1,406,000 2,744,000 2,320,000 $ 424,000 Hardware $ 3,150,000 Department Linens $ 1,000,000 409,000 591,000 890,000 $ (299,000) 997,000 2,153,000 1,430,000 $ 723,000 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 13% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?
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