Bed & Bath, a retailing company, has two departmentsHardware and Linens. The companys most recent monthly contribution format income statement follows:
Total Department
Hardware Linens
Sales $ $ $
Variable expenses
Contribution margin
Fixed expenses
Net operating income loss $ $ $
A study indicates that $ 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 decrease in the sales of the Hardware Department.
Required:
What is the financial advantage disadvantage of discontinuing the Linens Department?
