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Q1) Boyle's Home Center, retailing company, has 2 departments, Bath and Kitchen. Company's most recent monthly contribution format income statement follows:

  Department 
  Total  Bath  Kitchen 
Sales  $5000000 $1000000 $4000000
Variable expenses  1900000 300000 1600000
Contribution margin  3100000 700000 2400000
Fixed expenses  2700000 900000 1800000
Net operating income (loss)  $400000 $(200,000) $600000

Study points out that $370,000 of fixed expenses being charged to Bath Department are sunk costs or assigned costs which will continue even if Bath Department is dropped. Additionally, elimination of Bath Department would result in 10% decrease in sales of Kitchen Department.

problem:

If Bath Department is dropped, prepare down the effect on net operating income of company as whole?

Decrease__ in overall net operating income $410000_______

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M920025

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