Reference no: EM132605251
Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows:
Total Hardware Linens
Sales $ 4,000,000 $3,000,000 $1,000,000
Variable expenses 1,300,000 900,000 400,000
Contribution margin $ 2,700,000 $2,100,000 $ 600,000
Fixed expenses 2,200,000 1,400,000 800,000
Net operating income (loss) $ 500,000 $ 700,000 $ (200,000)
- 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.
Question 1: What is the financial advantage (disadvantage) of discontinuing the Linens Department?
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