Bed & Bath, a retailing company, has two departments, Hardware and Linens. The c

Question

Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows: 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 16% decrease in the sales of the Hardware Department. If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole?

Explanation / Answer

If the linen department is dropped that will result in 16% decrease in sales of hardware department

Sales 2536800

variable cost (858000)

Contribution 1678800

Fixed cost (1745000)

Net operating loss ( 66200).

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