| 1. | If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the companys total fixed costs.) Annual Profits would (Deacrease or Increase) BY__________ | 2. | Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.) Relevant cost per unit____________ 2. New Question | Bed & Bath, a retailing company, has two departments, Hardware and Linens. The companys most recent monthly contribution format income statement follows: | | | | Department | | | Total | Hardware | Linens | | Sales | $ | 4,170,000 | | $ | 3,070,000 | | $ | 1,100,000 | | | Variable expenses | | 1,400,000 | | | 993,000 | | | 407,000 | | | | | | | | | | | | | | Contribution margin | | 2,770,000 | | | 2,077,000 | | | 693,000 | | | Fixed expenses | | 2,350,000 | | | 1,470,000 | | | 880,000 | | | | | | | | | | | | | | Net operating income (loss) | $ | 420,000 | | $ | 607,000 | | $ | (187,000 | ) | | | | | | | | | | | | | | | A study indicates that $372,000 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 17% decrease in the sales of the Hardware Department. | | If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole? (Decrease or Increase) in net operating income _____________________ | | |
