Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution formatincome statement follows:SalesVariable expensesFixed expensesContribution marginNet operating income (loss)1,307,000DepartmentTotal$ 4,210,000Hardware$ 3,040,000Linens$ 1,170,000403,000767,000840,000$ (73,000)2,903,0002,290,000$ 613,000904,0002,136,0001,450,000$ 686,000A study indicates that $379,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continueeven if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 15% decrease in thesales of the Hardware Department.Required:What is the financial advantage (disadvantage) of discontinuing the Linens Department?Financial (disadvantage)

Discontinued operation is the decision making where the company decides to let go one of its…

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) Total $ 4,210,000 1,307,000 2,903,000 2,290,000 $ 613,000 Department Hardware $ 3,040,000 Linens $ 1,170,000 403,000 767,000 840,000 904,000 2,136,000 1,450,000 $ 686,000 $ (73,000) A study indicates that $379,000 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? Financial (disadvantage)

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) Total $ 4,210,000 1,307,000 2,903,000 2,290,000 $ 613,000 Department Hardware $ 3,040,000 Linens $ 1,170,000 403,000 767,000 840,000 904,000 2,136,000 1,450,000 $ 686,000 $ (73,000) A study indicates that $379,000 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? Financial (disadvantage)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 30E: A company uses charging rates to allocate service department costs to the using departments. The...

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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) Total $4,180,000. 1,365,000 2,815,000 2,230,000 $ 585,000 Department Hardware $ 3,080,000 963,000 2,117,000 1,340,000 $ 777,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Linens $ 1,100,000 402,000 698,000 890,000 $(192,000) 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 13% decrease in the sales of the Hardware Department.
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