. Eliminating a Department. ABCDE Department Store has five departments-A, B, C, D, and E. Department E's future is being evaluated using the following data:

Rent and services are corporate committed fixed expenses and are allocated evenly to the five departments. Half of the advertising expenses varies with sales; the other half will not change regardless of the decision and is allocated using sales dollars.
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Comment on the following statements:

(a) Department \(\mathrm{E}\) is earning \(\$ 150,000\) in variable contribution margin for \(\mathrm{ABCDE}\).

(b) Department \(\mathrm{E}\) is earning \(\$ 100,000\) in direct contribution margin for \(\mathrm{ABCDE}\).

(c) The company's overall profitability without Department E would be \(\$ 600,000\).

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Sales.... Cost of sales.. Gross margin. Rent and services Direct salaries... Advertising expenses Total expenses Net profit (loss).. All Others $4,500,000 2,200,000 $2,300,000 $ 800,000 450,000 450,000 $1,700,000 $ 600,000 Department E $ 500,000 300,000 $ 200,000 $ 200,000 Total $5,000,000 2,500,000 $2,500,000 $1,000,000 50,000 50,000 500,000 $ 300,000 $(100,000) 500,000 $2,000,000 $ 500,000