Question
In: Accounting
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 | $ | 4,100,000 | $ | 3,090,000 | $ | 1,010,000 | |||
| Variable expenses | 1,309,000 | 906,000 | 403,000 | ||||||
| Contribution margin | 2,791,000 | 2,184,000 | 607,000 | ||||||
| Fixed expenses | 2,300,000 | 1,500,000 | 800,000 | ||||||
| Net operating income (loss) | $ | 491,000 | $ | 684,000 | $ | (193,000 | ) | ||
A study indicates that $378,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 15% decrease in the sales of the Hardware Department.
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
Solutions
Expert Solution
Calculation of financial advantage (disadvantage) of discontinuing the Linens Department
Income statement after the discontinuing
| Hardware | Linen | Total | |
| Sales | 26,26,500.00 | - | 26,26,500.00 |
| Variable Exp | 7,70,100.00 | - | 7,70,100.00 |
| Contribution margin | 18,56,400.00 | - | 18,56,400.00 |
| Fixed Expenses | 15,00,000.00 | 3,78,000.00 | 18,78,000.00 |
| Net income | 3,56,400.00 | -3,78,000.00 | -21,600.00 |
So financial advantage (disadvantage) of discontinuing the Linens Department =
491000 + 21600 = 512,600 disadvantage
ekkarill92 answered 1 year agoRelated Solutions
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...
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...
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 $ 4,240,000 $ 3,140,000 $ 1,100,000 Variable expenses
1,226,000 818,000 408,000 Contribution margin 3,014,000 2,322,000
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,
Hardware and Linens. The company’s most recent monthly contribution
format income statement follows:
Department
Total
Hardware
Linens
Sales
$
4,150,000
$
3,040,000
$
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...
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...
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