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Bed & Bath, a retailing company, has two departments--Hardware and Linens. The company's most recent monthly contribution format income statement follows:

Its

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Department

Sales

Variable expenses

Contribution margin

Fixed expenses

Net operating income (loss)

Total

$ 4,050,000

1,349,000

2,701,000

2,200,000

$ 501,000

Hardware

$ 3,010,000

941,000

2,069,000

1,390,000

$ 679,000

Linens

$ 1,040,000

408,000

632,000

810,000

$ (178,000)

A study indicates that $376,000 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:

What is the financial advantage (disadvantage) of discontinuing the Linens Department?

Bed \& Bath, a retaling 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 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: What is the financial advantage (disadvantage) of discontinuing the Linens Department

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