Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format ncome statement follows: Department Total Hardware Linens Sales $ 4,070,000 $ 3,010,000 $ 1,060,000 Variable expenses 1,285,000 879,000 406,000 Contribution margin 2,785,000 2,220,000 2,131,000 654,000 Fixed expenses 1,360,000 860,000 Net operating income (loss) 565,000 $ 771,000 $ (206,000) A study indicates that $372,000 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?
Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format ncome statement follows: Department Total Hardware Linens Sales $ 4,070,000 $ 3,010,000 $ 1,060,000 Variable expenses 1,285,000 879,000 406,000 Contribution margin 2,785,000 2,220,000 2,131,000 654,000 Fixed expenses 1,360,000 860,000 Net operating income (loss) 565,000 $ 771,000 $ (206,000) A study indicates that $372,000 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?
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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