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Category > Accounting Posted 29 Jul 2017 My Price 10.00

Boyle’s Home Center,

EXERCISE 12–15 Dropping or Retaining a Segment [LO2]

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

 

 

 

 

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 charged 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 the sales of the Kitchen Department.

Required:

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

 

Answers

Maurice Tutor
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Status NEW Posted 29 Jul 2017 11:07 PM My Price 10.00

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