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 $ 4,220,000 1,396,000 2,824,000 2,150,000 $ 674,000 Hardware $ 3,150,000 Department Linens $ 1,070,000 417,000 653,000 850,000 $ 871,000 $ (197,000) 979,000 2,171,000 1,300,000 A study indicates that $375,000 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 12% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantage)

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 $ 4,220,000 1,396,000 2,824,000 2,150,000 $ 674,000 Hardware $ 3,150,000 Department Linens $ 1,070,000 417,000 653,000 850,000 $ 871,000 $ (197,000) 979,000 2,171,000 1,300,000 A study indicates that $375,000 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 12% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantage)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 30E: A company uses charging rates to allocate service department costs to the using departments. The...

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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: Total Department Hardware Linens Sales $ 4,240,000 $ 3,190,000 $ 1,050,000 Variable expenses 1,331,000 919,000 412,000 Contribution margin 2,909,000 2,271,000 638,000 Fixed expenses 2,230,000 1,380,000 850,000 Net operating income (loss) $ 679,000 $ 891,000 $ (212,000) A study indicates that $375,000 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 19% 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: Department Total Hardware Linens Sales $ 4,300,000 $ 3,150,000 $ 1,150,000 Variable expenses 1,311,000 909,000 402,000 Contribution margin 2,989,000 2,241,000 748,000 Fixed expenses 2,150,000 1,330,000 820,000 Net operating income (loss) $ 839,000 $ 911,000 $ (72,000 ) A study indicates that $374,000 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 17% 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: Total Department Hardware Linens Sales $ 4,000,000 $ 3,000,000 $ 1,000,000 Variable expenses 1,300,000 900,000 400,000 Contribution margin 2,700,000 2,100,000 600,000 Fixed expenses 2,200,000 1,400,000 800,000 Net operating income (loss) $ 500,000 $ 700,000 $ (200,000) A study indicates that $340,000 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 10% decrease in the sales of the Hardware Department. Based on the visualization: The relevant fixed cost in the decision to discontinue the Linens Department is: multiple choice 1 $340,000. $460,000. $800,000. $600,000. The total foregone contribution margin associated with dropping…
Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Total Department Hardware Linens Sales S 4,210,000 S 3,120,000 $ 1,090,000 Variable expenses 1,299,000 889,000 410, 000 Contribution margin 2,911,000 2,231,000 680,000 Fixed expenses 2,220,000 1,400,000 820,000 Net operating income (loss) $ 691,000 S 831,000 S (140,000) A study indicates that S 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 19% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?
Northern Stores is a retailer in the upper Midwest. The most recent monthly income statement for Northern Stores is given below: Total Store I Store II Sales $2,100,000 $1,300,000 $800,000 Variable expenses 1,260,000 882,000 378,000 Contribution margin 840,000 418,000 422,000 Traceable fixed expenses 420,000 231,000 189,000 Segment margin 420,000 187,000 233,000 Common fixed expenses 350,000 210,000 140,000 Net operating income $70,000 ($23,000) $93,000 Northern is considering closing Store I. If Store I is closed, one-fourth of its traceable fixed expenses would continue. Also, the closing of Store I would result in a 20% decrease in sales in Store II. Northern allocates common fixed expenses on the basis of sales dollars and none of these costs would be saved if a store were shut down. Required: Compute the overall increase or decrease in the net operating income of…
Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company’s most recentmonthly contribution format income statement follows:DepartmentTotal Hardware LinensSales ................................................ $4,000,000 $3,000,000 $1,000,000Variable expenses ........................... 1,300,000 900,000 400,000Contribution margin .......................... 2,700,000 2,100,000 600,000Fixed expenses ................................ 2,200,000 1,400,000 800,000Net operating income (loss) ............. $ 500,000 $ 700,000 $ (200,000)A study indicates that $340,000 of the fixed expenses being charged to Linens are sunk costs or allocatedcosts that will continue even if the Linens Department is dropped. In addition, the elimination of the LinensDepartment will result in a 10% 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 companyas a whole?