Managerial Accounting: E12-17 Bed & Bath, a retailing company, has two departments

Reminder: There are several versions of this question wherein the amounts and other information might have been changed.
Please make sure you REVIEW your homework questions and COMPARE to our tutorial questions to make sure this is what you need.

Managerial Accounting

Exercise 12-17 Dropping or Retaining a Segment
Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows:
Department
Total Hardware Linens
Sales 4,160,000 3,030,000 1,130,000
Variable expenses 1,307,000 889,000 418,000
Contribution margin 2,853,000 2,141,000 712,000
Fixed expenses 2,270,000 1,430,000 840,000
Net operating income (loss) $583,000 $711,000 $(128,000)

A study indicates that $375,000 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 14% 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?
Powered by