Bed & Bath, a retailing company, has two departments—Hardware and Linens. The co
ID: 2592103 • Letter: B
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 13% decrease in the sales of the Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
(i know its dissadvantage but for how much?)
Department Total Hardware Linens Sales $ 4,070,000 $ 3,030,000 $ 1,040,000 Variable expenses 1,382,000 962,000 420,000 Contribution margin 2,688,000 2,068,000 620,000 Fixed expenses 2,190,000 1,300,000 890,000 Net operating income (loss) $ 498,000 $ 768,000 $ (270,000 )Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up Statementshowing Computations Paticulars Hardware Linen Total Sales 3,030,000.00 1,040,000.00 4,070,000.00 Less Variable Expenses (962,000.00) (420,000.00) (1,382,000.00) Contribution Margin 2,068,000.00 620,000.00 2,688,000.00 Fixed cost (1,300,000.00) (890,000.00) (2,190,000.00) Net operating income 768,000.00 (270,000.00) 498,000.00 If Linen is dropped Paticulars Hardware Linen Total Sales 2,636,100.00 2,636,100.00 Less Variable Expenses (836,940.00) (836,940.00) Contribution Margin 1,799,160.00 - 1,799,160.00 Fixed cost (1,300,000.00) (375,000.00) (1,675,000.00) Net operating income 499,160.00 (375,000.00) 124,160.00 If Linen Department is dropped , net income will decrease by $373,840
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