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 $ 4,260, 000 $ 3, 130,000 S 1, 130, 000 Variable expenses 1, 240, 000 839,000 401,000 Contribution margin 3,020,000 2,291, 000 729,000 Fixed expenses 2,160,000 1,350,000 810, 000 Net operating income (loss) $ 860, 000 $ 941, 000 S (81, 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 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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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: Total
Department Hardware Linens Sales $ 4,260, 000 $ 3, 130,000 $ 1,130,000 Variable expenses 1, 240,000 839,000 401,000 Contribution margin
3,020,000 2,291, 000 729,000 Fixed expenses 2,160,000 1,350,000 810, 000 Net operating income (loss) $ 860, 000 $ 941, 000 $ (81, 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 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: Total Department Hardware Linens Sales $ 4,260, 000 $ 3, 130,000 $ 1,130,000 Variable expenses 1, 240,000 839,000 401,000 Contribution margin 3,020,000 2,291, 000 729,000 Fixed expenses 2,160,000 1,350,000 810, 000 Net operating income (loss) $ 860, 000 $ 941, 000 $ (81, 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 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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