Explore BrainMass

Explore BrainMass

    Dropping or retaining a department

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Please see attached document.

    Boyle's Home Center, a retailing company, has two departments, Bath and Kitchen. The company's most recent monthly contribution format income statement follows:

    Department
    Total Bath Kitchen
    Sales $5,000,000 $1,000,000 $4,000,000
    Variable expenses 1,900,000 300,000 1.600,000
    Contribution margin 3,100,000 700,000 2,400,000
    Fixed expenses 2,700,000 900,000 1,800,000
    Net operating income (loss) $400,000 $(200,000) $600,000

    A study indicates that $370,000 of the fixed expenses being charge to the Bath Department are sunk costs or allocated costs that will continue even if the Bath Department is dropped. In addition, the elimination of the Bath Department would result in a 10% decrease in sales of the Kitchen Department.

    If the Bath Department is dropped, what will be the effect on the net operating income of the company as a whole?

    © BrainMass Inc. brainmass.com June 3, 2020, 10:07 pm ad1c9bdddf
    https://brainmass.com/business/finance/dropping-or-retaining-a-department-215978

    Attachments

    Solution Summary

    This provides an example of determining whether or not a given department should be dropped based on net income.

    $2.19

    ADVERTISEMENT