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Exercise $13-17($Algo$)$ Dropping or Retaining a Segment $[$LO$13-2]$

$2$

points

Bed & Bath, a retailing company, has two departments$-$Hardware and Linens. The company's most recent monthly contribution format income statement follows:

$\backslash$table$[[,,,$Department$],[$Sales$,$Total,Hardware,Linens,$],[$Variable expenses,$$4,300,000,$$$3,150,000,$$$1,150,000,],[$Contribution margin,$1,311,000,892,000,419,000,],[$Fixed expenses,$2,989,000,2,258,000,731,000,],[$Net operating income $($loss$),2,320,000,1,460,000,860,000,]]$

A study indicates that $$379,000$ 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?

Answer is complete but not entirely correct.

Financial $($disadvantage$)$

$ $179,695$

Mc

Graw