Consider Devine Fashion from S8-6. Assume that the fixed expenses assigned to each department include only the following direct fixed costs of the department (rather than unavoidable fixed costs as given in S8-6):

• Salary of the department’s manager

• Cost of advertising directly related to that department If Devine Fashion discontinues a department, it will not incur these fixed expenses. Under these circumstances, should Devine Fashion discontinue any of the departments? Give your reason.

Data From S8-6:-

Devine Fashion in Chicago operates three departments: Men’s, Women’s, and Accessories. Devine Fashion allocates all fixed expenses (unavoidable building depreciation and utilities) based on each department’s square footage. Departmental operating income data for the third quarter of the current year are as follows:

The store will remain in the same building regardless of whether any of the departments are discontinued. Should Devine Fashion discontinue any of the departments? Give your reason.

Transcribed Image Text:

123455 D Devine Fashions Product Line Contribution Margin Income Statement For the Year Product lines 6 Men's Women's Accessories Company Total 7 Sales revenue $ 105,000 S 52,000 $ 101,000 S 258,000 8 Less: Variable expenses 58,000 28,000 90,000 176,000 9 Contribution margin $ 47,000 $ 24,000 $ 11,000 $ 82,000 10 Less: Fixed expenses 25,000 22,000 26,000 73,000 11 Operating income S 22,000 $ 2,000 $ (15,000) $ 9,000 12