Question 2: Bed and Bath, a retailing company has two departments, Hardware and Linens. The...
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Question 2: Bed and Bath, a retailing company has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement is given below: Sales Variable expenses Contribution Margin Fixed expenses Net Operating Income Total $40,00,000 13,00,000 27,00,000 22,00,000 $5,00,000 Department Hardware Linens $30,00,000 $10,00,000 9,00,000 4,00,000 21,00,000 600,000 14,00,000 800,000 $700,000 ($200,000) A study indicates that, $340,000 of the fixed expenses charged to Lines are sunk costs or allocated cost that will continue to incur even if the Linens department is dropped. In addition, the elimination of the Lines department will result in a 10% increase in the sales of the Hardware department. Required : If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole ?[5 Marks ]
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