Replace a department (Learning Objective 4)}

Consider Knight Fashion from S8-5 . Assume once again that all fixed costs are unavoidable. If Knight Fashion drops one of the current departments, it plans to replace the dropped department with a shoe department. The company expects the shoe department to produce \(\$ 80,000\) in sales and have \(\$ 50,000\) of variable costs. Because the shoe business would be new to Knight Fashion, the company would have to incur an additional \(\$ 7,000\) of fixed costs (advertising, new shoe display racks, and so forth) per quarter related to the department. What should Knight Fashion do now?