Cosmo Magika 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 2025, 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 What would the effect be on the store’s overall profits of closing down Department B?

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Sales Cost of sales Gross profit Direct expenses Indirect expenses Profit (loss) Department A $468000 280 000 188000 (46000) (82 000) $ 60000 Department B Department $188000 140 000 48 000 (24 000) (32 760) $ (8760) $280000 182 000 98 000 (28100) (49140) $ 20760