Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly...
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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: Department Hardware Linens Total $4,120,000 $3,080,000 $1,040,000 Sales Variable expenses 1,389,000 974,000 415,000 Contribution margin 2,731,000 2,106,000 625,000 2,270,000 1,380,000 Fixed expenses 890,000 Net operating income (loss) $ 461,000 $ 726,000 $(265,000) 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? Answer is complete but not entirely correct. Financial (disadvantage) $ (898,780) Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Department Hardware Linens Total $4,120,000 $3,080,000 $1,040,000 Sales Variable expenses 1,389,000 974,000 415,000 Contribution margin 2,731,000 2,106,000 625,000 2,270,000 1,380,000 Fixed expenses 890,000 Net operating income (loss) $ 461,000 $ 726,000 $(265,000) 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? Answer is complete but not entirely correct. Financial (disadvantage) $ (898,780)
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Related Book For
Managerial Accounting
ISBN: 978-1259307416
16th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
Posted Date:
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