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Check my work Bed & Bath, a retailing company, has two departments-Hardware and Linens. The companys most recent monthly contribution format income statement follows: Tota $ 4,000,000 3,000,000 $ 1,000,000 900,000 40o,000 600,000 2.200,000 1,400,000800,00 s 500,000 700,000 (200,000) Sales 1,300,000 Contribution margin Pixed expenses Net operating income (loss) 2,700,000 2,100,000 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? <Prev 4015 Next > 112 4 F9
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Answer #1

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Contribution margin lost if linen department is dropped

Lost from the linen department $600,000

Lost from the hardware department(2,100,000*10%)    $210,000

Total lost contribution margin $810,000

Less. Avoidable fixed cost($800,000-340000)    $460,000

Disadvantage of discontinuing linen dept.   $350,000

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Answer #2
Why is disadvantage?
answered by: Ry7890
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