Chapter 9: Relevant Cost for Decision Making 1. Bed and Bath, a retailing company has two departments, Hardware and Linens. A recent monthly contribution format income statement for the month follows: Department Total 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 expense 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 fixed expenses being charged to Linens are sunk cost or allocated sts 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.| Should the production and sale of the Linens Department be discontinued? Show computation to support your answer. If the Linens Department is dropped, what will be the effect of the net operating income of the company as a whole? (Hint: use below table for computation, then decide to discontinue or not based on total net operating income effect on company) Contribution margin approach if the Linen Department is dropped: Loss from the Linen Department Contribution Margin Loss from the Hardware Department Contribution Margin Total loss contribution margin Less fixed costs that can be avoided Total decrease in profits