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?
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?
Related questions
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 | $ | 4,230,000 | $ | 3,090,000 | $ | 1,140,000 | |||
| Variableexpenses | 1,227,000 | 819,000 | 408,000 | ||||||
| Contributionmargin | 3,003,000 | 2,271,000 | 732,000 | ||||||
| Fixed expenses | 2,340,000 | 1,470,000 | 870,000 | ||||||
| Net operating income(loss) | $ | 663,000 | $ | 801,000 | $ | (138,000 | ) | ||
A study indicates that $379,000 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 15% decreasein the sales of the Hardware Department. |
| If the Linens Department is dropped, what will be the effect onthe net operating income of the company as a whole? (Increase/Decrease) net operating income by (?) |
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 | $ | 4,150,000 | $ | 3,140,000 | $ | 1,010,000 | |||
| Variableexpenses | 1,343,000 | 941,000 | 402,000 | ||||||
| Contributionmargin | 2,807,000 | 2,199,000 | 608,000 | ||||||
| Fixed expenses | 2,230,000 | 1,410,000 | 820,000 | ||||||
| Net operating income(loss) | $ | 577,000 | $ | 789,000 | $ | (212,000 | ) | ||
A study indicates that $379,000 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 19% 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? |
