FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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B&B, a retailer, has two departments: beds and linens. A recent monthly income statement for the company follows:
Sales
Less: Variable expenses
Contribution margin
Less: Fixed expenses
Net operating income (loss)
Department
Net operating income decreased
Beds
Linens
$3,000,000 $1,000,000
1000,000
by
400,000
600,000
800,000
$ 600,000 $ (200,000)
2,000,000
1,400,000
Total
$4,000,000
1,400,000
A study indicates that $240,000 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 20% decrease in the sales
of the beds department.
2,600,000
2,200,000
400,000
Required:
If the linens department is dropped, what will be the effect on the net operating income of the company as a whole?
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Transcribed Image Text:B&B, a retailer, has two departments: beds and linens. A recent monthly income statement for the company follows: Sales Less: Variable expenses Contribution margin Less: Fixed expenses Net operating income (loss) Department Net operating income decreased Beds Linens $3,000,000 $1,000,000 1000,000 by 400,000 600,000 800,000 $ 600,000 $ (200,000) 2,000,000 1,400,000 Total $4,000,000 1,400,000 A study indicates that $240,000 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 20% decrease in the sales of the beds department. 2,600,000 2,200,000 400,000 Required: If the linens department is dropped, what will be the effect on the net operating income of the company as a whole?
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