Question: PLEASE ANSWER ALL PARTS Bed & Bath, a retailing company, has two departmentsHardware and Linens. The companys most recent monthly contribution format income statement follows:
PLEASE ANSWER ALL PARTS
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 | $ 4,340,000 | $ 3,150,000 | $ 1,190,000 |
| Variable expenses | 1,410,000 | 992,000 | 418,000 |
| Contribution margin | 2,930,000 | 2,158,000 | 772,000 |
| Fixed expenses | 2,200,000 | 1,320,000 | 880,000 |
| Net operating income (loss) | $ 730,000 | $ 838,000 | $ (108,000) |
A study indicates that $372,000 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 15% decrease in the sales of the Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
| Financial (disadvantage) |
2.You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the companys costing system and do what you can to help us get better control of our manufacturing overhead costs. You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control.
After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March:
| Cost Formula | Actual Cost in March | |
|---|---|---|
| Utilities | $16,600 + $0.13 per machine-hour | $ 21,520 |
| Maintenance | $38,400 + $1.80 per machine-hour | $ 75,400 |
| Supplies | $0.40 per machine-hour | $ 9,400 |
| Indirect labor | $94,300 + $1.70 per machine-hour | $ 136,000 |
| Depreciation | $68,100 | $ 69,800 |
During March, the company worked 22,000 machine-hours and produced 16,000 units. The company had originally planned to work 24,000 machine-hours during March.
Required:
1. Prepare a flexible budget for March.
2. Prepare a report showing the spending variances for March.
FAB Corporation Flexible Budget For the Month Ended March 31 Machine-hours Utilities Maintenance Supplies Indirect labor Depreciation Total FAB Corporation Spending Variances For the Month Ended March 31
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