Exercise 11-17 Dropping or Retaining a Segment [LO11-2]

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

				Department
	Total			Hardware			Linens
Sales	$	4,280,000		$	3,170,000		$	1,110,000
Variable expenses		1,321,000			909,000			412,000
Contribution margin		2,959,000			2,261,000			698,000
Fixed expenses		2,350,000			1,460,000			890,000
Net operating income (loss)	$	609,000		$	801,000		$	(192,000	)

A study indicates that $380,000 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 12% decrease in the sales of the Hardware Department.

Required:

What is the financial advantage (disadvantage) of discontinuing the Linens Department?

Exercise 11-17 Dropping or Retaining a Segment [LO11-2] Bed & Bath, a retailing company, has two departmentsHardware and Linens. The company's most recent monthly contribution format income statement follows: points Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Department Total Hardware Linens $4,280,000 $3,170,000 $1,110,000 1,321,000 909,000 412,000 2,959,000 2,261,000 698,000 2,350,000 1,460,000 890,000 $ 609,000 $ 801,000 $ (192,000) A study indicates that $380,000 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 12% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Answer is not complete. Financial (disadvantage)