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?

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

Section: Chapter Questions

Problem 1Q

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