Bed \& Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent...

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Accounting

Bed \& Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: A study indicates that $376,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will bontinue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 12% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department

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To determine the financial advantage or disadvantage of discontinuing the Linens Department we need to analyze the impact on the companys overall profitability Step 1 Analyze the Current Contribution Margin Linens Department Sales 1000000 Variable Expenses 412000 Contribution Margin 588000 Hardware Department Sales 3190000 Variable Expenses 939000 Contribution See Answer

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