Question

Exercise 11-17 Dropping or Retaining a Segment (LO11-2) 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 $ 4,250,000 $3,060,000 $1,190,000 1,411,000 993,000 418,000 2,839,000 2,067,000 772,000 2,350,000 1,480,000 $70,000 $ 489,000 $ 587,000$ (98,000) A study indicates that $374,000 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?

Answer 1

Solutions Givon data, Total 4 Haxdlonne inens Sales 2060 000 119b000 u250000 Variabte expenses 418 000 993000 411000 T72 000 L067000 L&39000 Comtalantion mangn TuSo oOD varuadsa Poa) 000) S8J0UD Net opexating inceme faed Costs if lines is dis continued usooo0 t 314 000 =$ i8suouo Sales if ine is discontinued 3060 000A 30 60 030- 47800=a66a 200 30 60 000 a nable ex penue, if linen is dišcontineed 993000- 993000x13 ११300० - 129090 63910

Bnoraie in Dncome (Loss) linen is IF linenis Contineued dis cortineued a66aa0 IS87800 U250 000 Sales Vble expanses 86 39(0 S090 Contnbution margin - 1ouD10 798290 28390cD 496000 fixed epenje- a3s0 0OD Net opeaing income ५৭০o০ -SSTIO ff linen department i diccontinued,there a financial disadvantge af S32-110 wauld be Thus, nan deputiment ghauld vet he discontinued