Dairy Delights operates with three departments. The owner–manager wants to close Department B because it continually shows a loss. During the past year ending 30 June 2020, the departmental performances were as follows.

In analysing these results, the accountant determines that insurance expense ($18 000) and travel expense ($7000) are the only indirect expenses that can be avoided if Department B is closed. All direct expenses are avoidable.
Required

(a) What would the effect be on the store’s overall profits of closing down Department B?

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Department A Department B Department C Sales $468000 Cost of sales 280000 Gross profit Direct expenses Indirect expenses Profit (loss) 188000 (46000) (82000) $188000 140000 48000 (24000) (32760) $280,000 182 000 98 000 (28100) (49140) $ 60.000 $ (8760) $ 20760