10.00 points monthly contribution format incometatetments, Hardware and Linens.

Question

10.00 points monthly contribution format incometatetments, Hardware and Linens. The company's most recent Total Sales Variable expenses $4,210,000 $3,050,000 $1,160,000 1,324,000 908,000 416,000 Contribution margin Fixed expenses 2,886,000 2,142,000 744000 2,190,000 1,350,000 840,000 Net operating income (loss) 696,000 5 792,000 S (96,000) A study indicates that $375,000 of the fxed 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 14% decrease in the sales of the Hardware Department Required: If the Linens Department is dropped, what will be the eflect on the net operating income of the company as a whole? in net operating income

Explanation / Answer

Contribution margin lost if the Linens Department is dropped: cost from the Linens Department =$7,44,000 Lost from the Hardware Department (14% × $21,42,000) =$2,99,880 Total lost contribution margin =$10,43,880 Less fixed costs that can be avoided ($840,000 – $375,000) =$4,65,000 Decrease in profits for the company as a whole =$5,78,880

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