Bed & Bath, a retailing company, has two departmentsHardware and Linens. The companys most recent monthly contribution format income statement follows:

	Total	Department
Hardware	Linens
Sales	$ 4,040,000	$ 3,010,000	$ 1,030,000
Variable expenses	1,352,000	938,000	414,000
Contribution margin	2,688,000	2,072,000	616,000
Fixed expenses	2,260,000	1,380,000	880,000
Net operating income (loss)	$ 428,000	$ 692,000	$ (264,000)

A study indicates that $371,000 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?

Answer rating: 100% (QA)

To determine the financial advantage or disadvantage of discontinuing the Linens Department we need ... View the full answer