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: Department Total 1,356,000 2,924,000 2,155,000 Hardware Linens $4,280,000 $3,110,000 $1,170,000 Sales Variable expenses 955,000 401,000 Contribution margin Fixed expenses 769,000 900,000 2,380,000 1,480,000 Net operating income (loss) $ 544,000 $ 675,000 $ (131,000) A study indicates that $374,000 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 Required: If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole? in net operating income

Explanation / Answer

Effect on Net operating income when linen will drop will be:

Net operating Income will reduce by $587,800

Hardware Linens Total Sales 2,612,400 0 2612400 less: Variable expenses (955,000/3,110,000*2,612,400) 802,200 0 802200 Contribution Margin 1,810,200 1810200 Less: fixed Cost 1,480,000 374,000 1854000 Net operating Income 330,200 -374,000 -43800

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.