Question
In: Accounting
Rockingham Hardware Store has three departments: Tools, Lumber and Paint. The most recent departmental income statements...
Rockingham Hardware Store has three departments: Tools, Lumber and Paint. The most recent departmental income statements are shown below:
|
Tools |
Lumber |
Paint |
Company Total |
|
|
Sales |
$1,000,000 |
$525,000 |
$375,000 |
$1,900,000 |
|
Cost of goods sold |
(500,000) |
(400,000) |
(280,000) |
(1,180,000) |
|
Gross profit |
500,000 |
125,000 |
95,000 |
720,000 |
|
Direct expenses |
(200,000) |
(100,000) |
(97,500) |
(397,500) |
|
Allocated expenses |
(100,000) |
(75,000) |
(175,000) |
(350,000) |
|
Operating income (loss) |
$200,000 |
$(50,000) |
$(177,500) |
$(27,500) |
Based on this income statement, management is planning on eliminating both the lumber and paint departments, as they are both generating a net loss.
Required: Answer the following showing your work as much as possible where appropriate.
- What type of departments (centers) are Tools, Lumber and Paint and what information supports your conclusion?
- Calculate the lumber department’s contribution to overhead.
- Calculate the paint department’s contribution to overhead.
- Calculate total operating income (loss) for the company if both the lumber and paint departments are eliminated.
- Should the lumber department be eliminated? Why or why not?
- Should the paint department be eliminated? Why or why not?
Solutions
ekkarill92 answered 2 years agoRelated Solutions
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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: Department Total Hardware Linens
Sales $ 4,240,000 $ 3,140,000 $ 1,100,000 Variable expenses
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692,000 Fixed expenses 2,110,000 1,300,000 810,000 Net operating
income (loss) $ 904,000 $ 1,022,000 $ (118,000) A study indicates
that $379,000 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...
Bed & Bath, a retailing company, has two departments,
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format income statement follows:
Department
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Hardware
Linens
Sales
$
4,150,000
$
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$
1,110,000
Variable
expenses
1,367,000
952,000
415,000
Contribution
margin
2,783,000
2,088,000
695,000
Fixed expenses
2,290,000
1,470,000
820,000
Net operating income
(loss)
$
493,000
$
618,000
$
(125,000
)
A study indicates that $374,000 of the fixed expenses being
charged to Linens are sunk costs or allocated costs that will...
Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company’s most recent...
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 $ 4,080,000 $ 3,030,000 $ 1,050,000
Variable expenses 1,222,000 817,000 405,000
Contribution margin 2,858,000 2,213,000 645,000
Fixed expenses 2,210,000 1,340,000 870,000
Net operating income (loss) $ 648,000 $ 873,000 $
(225,000 )
A study indicates that $375,000 of the fixed expenses being
charged to Linens are sunk costs or allocated costs that will...
Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly...
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
$
3,140,000
$
1,030,000
Variable expenses
1,337,000
928,000
409,000
Contribution margin
2,833,000
2,212,000
621,000
Fixed expenses
2,170,000
1,330,000
840,000
Net operating income (loss)
$
663,000
$
882,000
$
(219,000
)
A study indicates that $374,000 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...
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
$
3,110,000
$
1,060,000
Variable expenses
1,315,000
908,000
407,000
Contribution margin
2,855,000
2,202,000
653,000
Fixed expenses
2,330,000
1,450,000
880,000
Net operating income (loss)
$
525,000
$
752,000
$
(227,000
)
A study indicates that $373,000 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...
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
$
4,250,000
$
3,090,000
$
1,160,000
Variable expenses
1,217,000
803,000
414,000
Contribution margin
3,033,000
2,287,000
746,000
Fixed expenses
2,270,000
1,420,000
850,000
Net operating income (loss)
$
763,000
$
867,000
$
(104,000
)
A study indicates that $374,000 of the fixed expenses being
charged to Linens are sunk costs or allocated costs that will
continue...
1. Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent...
1. 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
$
3,150,000
$
1,030,000
Variable expenses
1,219,000
805,000
414,000
Contribution margin
2,961,000
2,345,000
616,000
Fixed expenses
2,220,000
1,400,000
820,000
Net operating income (loss)
$
741,000
$
945,000
$
(204,000
)
A study indicates that $376,000 of the fixed expenses being
charged to Linens are sunk costs or allocated costs that will...
Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly...
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
$
4,290,000
$
3,170,000
$
1,120,000
Variable expenses
1,262,000
851,000
411,000
Contribution margin
3,028,000
2,319,000
709,000
Fixed expenses
2,180,000
1,310,000
870,000
Net operating income (loss)
$
848,000
$
1,009,000
$
(161,000
)
A study indicates that $379,000 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...
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 $ 4,080,000 $ 3,020,000 $ 1,060,000 Variable
expenses 1,321,000 909,000 412,000 Contribution margin 2,759,000
2,111,000 648,000 Fixed expenses 2,260,000 1,400,000 860,000 Net
operating income (loss) $ 499,000 $ 711,000 $ (212,000 ) A study
indicates that $379,000 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...
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 $ 4,200,000 $ 3,120,000 $ 1,080,000 Variable
expenses 1,249,000 836,000 413,000 Contribution margin 2,951,000
2,284,000 667,000 Fixed expenses 2,300,000 1,410,000 890,000 Net
operating income (loss) $ 651,000 $ 874,000 $ (223,000 ) A study
indicates that $379,000 of the fixed expenses being charged to
Linens are sunk costs or allocated costs that will continue...
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