AFM102 Lecture Notes - Lecture 17: Fixed Cost

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apricottoad869

15 Oct 2015

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Peter Blake

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Document Summary

Bed and bath has 2 departments: hardware and linens. ***additional info: ,000 of linens fixed costs are sunk costs or allocated costs. If eliminate linens, lose 10% of hardware sales. Keep or close? (looking at the effect on the total) full contribution margin lost for linens (,000), but you"re also going to lose 10% of the hardware contribution margin (loss of ,000 which is 10% of. 2,100,000) 810,000 is no longer going to be there which is what you"re going to lose. Fixed costs that will disappear (800,000- 340,000) =460,000.

Related Questions

Exercise 10-17 Dropping or Retaining a Segment [LO10-2]

Bed & Bath, a retailing company, has two departments, Hardware and Linens. The companyâs most recent monthly contribution format income statement follows:

Department

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.

Required:

If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole?

viridianzebra706

EXERCISE 12-17 Dropping or Retaining a Segment [L012-2] Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows: Department Hardware Linens Total Sales ......... Variable expenses ......... Contribution margin Fixed expenses Net operating income (loss) ........ ........... .. $4,000,000 1,300,000 2,700,000 2,200,000 $ 500,000 $3,000,000 900,000 2,100,000 1,400,000 $ 700,000 $1,000,000 400,000 600,000 800,000 $ 200,000 A study indicates that $340,000 of the fixed expenses being charged to Linens are sunk costs or allo- cated 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. Required: If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole?

Bed & Bath, a retailing company, has two departments,Hardware and Linens. The companyâs most recent monthly contributionformat income statement follows:

			Department
	Total		Hardware		Linens
Sales	$	4,180,000	$	3,100,000	$	1,080,000
Variable expenses		1,308,000		891,000		417,000

Contribution margin		2,872,000		2,209,000		663,000
Fixed expenses		2,120,000		1,320,000		800,000

Netoperating income (loss)	$	752,000	$	889,000	$	(137,000	)

A study indicates that $375,000 of the fixed expenses beingcharged to Linens are sunk costs or allocated costs that willcontinue even if the Linens Department is dropped. In addition, theelimination of the Linens Department will result in a 12% decreasein the sales of the Hardware Department.

Required:

If the Linens Department is dropped, what will be the effect onthe net operating income of the company as a whole?

pucellama722

AFM102 Lecture Notes - Lecture 17: Fixed Cost

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