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27 Apr 2018
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?
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?
Bunny GreenfelderLv2
28 Apr 2018
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 | $ | 4,180,000 | $ | 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?
