Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly contribution format income statement follows:
Department | |||||||||
Total | Hardware | Linens | |||||||
Sales | $ | 4,180,000 | $ | 3,010,000 | $ | 1,170,000 | |||
Variable expenses | 1,315,000 | 912,000 | 403,000 | ||||||
Contribution margin | 2,865,000 | 2,098,000 | 767,000 | ||||||
Fixed expenses | 2,170,000 | 1,360,000 | 810,000 | ||||||
Net operating income (loss) | $ | 695,000 | $ | 738,000 | $ | (43,000 | ) | ||
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 18% decrease in the sales of the Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
Net financial Disadvantage of Discontinuing linens department | $ (673,640) |
Working
Working | Total | Hardware | Linens | |
A | Sales | $ 2,468,200 | $ 2,468,200* | |
B | Variable expenses | $ 747,840 | $ 747,840 | |
C=A-B | Contribution margin | $ 1,720,360 | $ 1,720,360 | $ - |
D | Fixed expenses | $ 1,735,000 | $ 1,360,000 | $ 375,000 |
E=C-D | Net Operating Income (Loss) | $ (14,640) | $ 360,360 | $ (375,000) |
*3010000*82%
The variable cost in hardware also decrease to 82% of original.
Net operating income before discontinuing linens | $ 659,000 |
Net operating income after discontinuing linens | $ (14,640) |
Net financial Disadvantage of Discontinuing linens department | $ (673,640) |
Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly...
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Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Department Total Hardware Linens $ 4,310,000 $ 3,150,000 $ 1,160,000 1,319,000 912,000 407,000 2,991,000 2,238,000 753,000 2,270,000 1,370,000 900,000 $ 721,000 $ 868,000 $ (147,000) A study indicates that $378,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even...
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...
Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly contribution format income statement follows: Department Total Hardware Linens Sales $ 4,340,000 $ 3,180,000 $ 1,160,000 Variable expenses 1,218,000 808,000 410,000 Contribution margin 3,122,000 2,372,000 750,000 Fixed expenses 2,240,000 1,340,000 900,000 Net operating income (loss) $ 882,000 $ 1,032,000 $ (150,000 ) A study indicates that $376,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue...
Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly contribution format income statement follows: Department Total Hardware Linens Sales $ 4,170,000 $ 3,120,000 $ 1,050,000 Variable expenses 1,301,000 891,000 410,000 Contribution margin 2,869,000 2,229,000 640,000 Fixed expenses 2,340,000 1,470,000 870,000 Net operating income (loss) $ 529,000 $ 759,000 $ (230,000 ) A study indicates that $372,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue...