If Department Y is discontinued, will this be a positive move or a negative move for the company as… 1 answer below »
B & B Inc., a retailing company has two departments, X and Y. A recent monthly
contribution format income state for the company follows.
X
Y
Total
Sales
$3,000,000
$1,000,000
$4,000,000
Variable expenses
900,000
400,000
1,300,000
Contribution margin
2,100,000
600,000
2,700,000
Fixed expenses
1,400,000
800,000
2,200,000
Operating income (loss)
$700,000
($200,000)
$500,000
A study indicates that $340,000 of the fixed expenses being charged to Y are sunk costs or allocated costs that will continue even if Y is dropped. In addition the elimination of Y will result in a 10% decrease in the sales of X.
Required: If Department Y is discontinued, will this be a positive move or a negative move for the company as a whole?
