Department Total Linens Hardware Sales... $4,000,000 $3,000,000 $1,000,000 Variable expenses Contribution margin. Fixed expenses Net operating income (loss) 900,000 400,000 2,700,000 2,100,000 600,000 2,200,000 $ 500,000 1,400,000 $ 700,000 800,000 $ (200,000)
Department Total Linens Hardware Sales... $4,000,000 $3,000,000 $1,000,000 Variable expenses Contribution margin. Fixed expenses Net operating income (loss) 900,000 400,000 2,700,000 2,100,000 600,000 2,200,000 $ 500,000 1,400,000 $ 700,000 800,000 $ (200,000)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Dropping or Retaining a Segment
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 $340,000 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 10% decrease in the sales of the Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
Transcribed Image Text:Department
Total
Linens
Hardware
Sales...
$4,000,000
$3,000,000
$1,000,000
Variable expenses
Contribution margin.
Fixed expenses
Net operating income (loss)
900,000
400,000
2,700,000
2,100,000
600,000
2,200,000
$ 500,000
1,400,000
$ 700,000
800,000
$ (200,000)
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