Bed & Bath, a retailing company, has two departments—Hardware and Linens. The company’s most recent monthly contribution format income statement follows: Department Total Hardware Linens Sales $ 4,300,000 $ 3,130,000 $ 1,170,000 Variable expenses 1,403,000 994,000 409,000 Contribution margin 2,897,000 2,136,000 761,000 Fixed expenses 2,250,000 1,350,000 900,000 Net operating income (loss) $ 647,000 $ 786,000 $ (139,000 ) A study indicates that $378,000 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 20% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department?

Bed & Bath

The financial disadvantage of discontinuing the Linens Department is:

= $1,004,000.

Explanation:

a) Data and Calculations:

Department                                  Total         Hardware        Linens

Sales                                     $ 4,300,000   $ 3,130,000   $ 1,170,000

Variable expenses                   1,403,000        994,000        409,000

Contribution margin                2,897,000     2,136,000         761,000

Fixed expenses                       2,250,000    1,350,000        900,000

Net operating income (loss)   $ 647,000    $ 786,000     $ (139,000 )

The financial disadvantage of discontinuing the Linens Department is:

Allocated fixed costs = $378,000

Hardware sales lost =    626,000 ($3,130,000 * 20%)

Total disadvantage = $1,004,000

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.

answer$225.00;