Answer:
By eliminating Linens department net operating income fell by $574,800.00
Step-by-step explanation:
The question requires that the monthly contribution income statement be prepared when the Linens is closed or eliminated,incorporating the unavoidable fixed costs of $373,000 as well as the fall in sales of Hardware by 15%.
Monthly Contribution Income Statement:
Sales($3,110,000)*(1-15%) $2,643,500.00
Variable expenses($858,000)*(1-15%) ($729,300.00)
Contribution margin $1,914,200.00
Fixed expenses($1,480,000+$373,000) ($1,853,000.00)
Net operating income $61,200.00
Reduction in net operating=$636,000-$61,200.00=$574,800
Alternatively:
Lost contribution from closing Linens department $674,000.00
Lost contribution from Hardware(15%*$2,252,000) $ 337,800.00
Total lost contribution $1,011,800.00
Less avoidable fixed costs($810,000-$373,000) ($437,000.00)
Reduction in profits company-wide $574,800.00
