Consider Mila Fashion from S8- 5. Assume once again that all fixed costs are unavoidable. If the company discontinues one of the current departments, it plans to replace the discontinued department with a Shoe Department. The company expects the Shoe Department to produce $ 81,000 in sales and have $ 52,000 of variable costs. Because the shoe business would be new to Mila Fashion, the company would have to incur an additional $ 6,800 of fixed costs (advertising, new shoe display racks, and so forth) per quarter ­related to the department. What should the company do now?
From S8-5

Transcribed Image Text:

Mila Fashions Product Line Contribution Marg in Income Statement For the Year Product lines Women's Men's Accessories Compary Total 56,000 7 Sales revenue 8 Less:Variable expenses 9 Contribution margin 10 Less: Fxed expenses 11 Operating income 12 59,000 50,00026,000 18,000 179000 84,000 67,000 8,000 24,000