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 Hardvare $3,000,000 $ 1,120,000 Variable expenses $ 4,120,000 1,278,000 2,842,000 859,000 419,000 Contribution margin Pixed expenses 2,141,000 2,220,000 701,000 830,000 1,390,000 Net operating income (loss) $622,000 $751,000 $(129,000) 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: What is the financial advantage (disadvantage) of discontinuing the Linens Department?

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 Hardvare $3,000,000 $ 1,120,000 Variable expenses $ 4,120,000 1,278,000 2,842,000 859,000 419,000 Contribution margin Pixed expenses 2,141,000 2,220,000 701,000 830,000 1,390,000 Net operating income (loss) $622,000 $751,000 $(129,000) 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: What is the financial advantage (disadvantage) of discontinuing the Linens Department?

Name: Bed & Bath, a retailing company, has two departments-Hardware and Lin
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Description: Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution formatincome statement follows:DepartmentTotalLinensSalesHardware$3,000,000Variable expenses$ 1,120,000419,000$ 4,120,0001,278,0

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 30E: A company uses charging rates to allocate service department costs to the using departments. The...

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Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company’s most recentmonthly contribution format income statement follows:DepartmentTotal Hardware LinensSales ................................................ $4,000,000 $3,000,000 $1,000,000Variable expenses ........................... 1,300,000 900,000 400,000Contribution margin .......................... 2,700,000 2,100,000 600,000Fixed expenses ................................ 2,200,000 1,400,000 800,000Net operating income (loss) ............. $ 500,000 $ 700,000 $ (200,000)A study indicates that $340,000 of the fixed expenses being charged to Linens are sunk costs or allocatedcosts that will continue even if the Linens Department is dropped. In addition, the elimination of the LinensDepartment will result in a 10% 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 companyas a whole?
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