Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly contribution format income statement follows: TotalDepartmentHardwareLinensSales$ 4,240,000$ 3,190,000$ 1,050,000Variable expenses1,331,000919,000412,000Contribution margin2,909,0002,271,000638,000Fixed expenses2,230,0001,380,000850,000Net operating income (loss)$ 679,000$ 891,000$ (212,000) 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 19% decrease in the sales of the Hardware Department. Required:What is the financial advantage (disadvantage) of discontinuing the Linens Department?

Loss in contribution of Hardware department = 2,271,000×19% = 431490

Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly contribution format income statement follows: Total Department Hardware Linens Sales $ 4,240,000 $ 3,190,000 $ 1,050,000 Variable expenses 1,331,000 919,000 412,000 Contribution margin 2,909,000 2,271,000 638,000 Fixed expenses 2,230,000

Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly contribution format income statement follows: Total Department Hardware Linens Sales $ 4,240,000 $ 3,190,000 $ 1,050,000 Variable expenses 1,331,000 919,000 412,000 Contribution margin 2,909,000 2,271,000 638,000 Fixed expenses 2,230,000

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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	Total	Department
Hardware	Linens
Sales	$ 4,240,000	$ 3,190,000	$ 1,050,000
Variable expenses	1,331,000	919,000	412,000
Contribution margin	2,909,000	2,271,000	638,000
Fixed expenses	2,230,000	1,380,000	850,000
Net operating income (loss)	$ 679,000	$ 891,000	$ (212,000)

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