4:37 PM ezto.mheducation.com Pad ACC 2203 Fall 2017 Online: ACC 2203 Fall 2017 F

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4:37 PM ezto.mheducation.com Pad ACC 2203 Fall 2017 Online: ACC 2203 Fall 2017 Full Online ACCOUNTING Chapter 10 HW Question 4 (of 5) 4 value: 10.00 points Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows Department Total Linens Sales Variable expenses Hardware $4,270,000 $3,170,000 1,100,000 1,274,000 855,000 419,000 Contribution margin Fixed expenses 2,996,000 2,315,000 681,000 2,310,000 1,470,000 840,000 Net operating income (loss) $ 686,000 $ 845,000 $ (159,000) A study indicates that $376,000 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 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 References eBook & Resources Worksheet Difficulty: 1 Easy Learning Objective: 10-02 Prepare an ana whether a product line or other business s be added or dropped

Explanation / Answer

Contribution margin for Hardware=Contribution margin/Sales

=(2,315,000/3,170,000)=0.7303

New sales=(3,170,000*85%)=$2694500

Hence new Contribution margin for Hardware=(2694500*0.7303)=$1967750

Less:Fixed costs for Hardware=($1,470,000)

Less:Fixed costs for Linens=(376000)

New net operating income=$121750

Hence decrease in net operating income=(121750-686000)=$564250.

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