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Bed & Bath, a retailing company, has two departmentsHardware and Linens. The companys most recent...

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Accounting

Bed & Bath, a retailing company, has two departmentsHardware and Linens. The companys most recent monthly contribution format income statement follows:

Department
Total Hardware Linens
Sales $ 4,080,000 $ 3,060,000 $ 1,020,000
Variable expenses 1,410,000 992,000 418,000
Contribution margin 2,670,000 2,068,000 602,000
Fixed expenses 2,270,000 1,400,000 870,000
Net operating income (loss) $ 400,000 $ 668,000 $ (268,000 )

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 17% decrease in the sales of the Hardware Department.

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