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?