4. Elana Fashions operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of 2018 are as follows: (Click the icon to view the data.) (Click the icon to view additional information.) If Elana Fashions drops a department, it will not incur these fixed costs. Under these circumstances, should Elana Fashions drop any of the departments? Give your reasoning. Begin by completing the following analysis to determine the increase or decrease in operating income from dropping the Accessories Department, the only Department showing an operating loss this quarter. (Enter decreases to profits with a parentheses or minus sign.) Elana Fashions Analysis of Dropping the Accessories Department Expected decrease in revenues Expected decrease in costs: Expected decrease in variable costs Expected decrease in fixed costs Expected decrease in total costs in operating (1) income Under these circumstances, should Elana Fashions drop any of the departments? Give your reasoning. Decision: Elana Fashions (2) - because (3) 1: Data Table 1: Data Table Elana Fashions Income Statement For the Quarter Ended September 30, 2018 Department Men's Women's Accessories $ 104,000 $ 54,000 $ 103,000 $ 58,000 29,000 88,000 Net Sales Revenue Total 261,000 175,000 Variable Costs Contribution Margin 46,000 24,000 Fixed Costs 25,000 22,000 3,000 $ 15,000 27,000 (12,000) $ 86,000 73,000 13,000 Operating Income (Loss) $ 22,000 $ 2: More Info Assume that the fixed costs assigned to each department include only direct fixed costs of the department: Salary of the department's manager Cost of advertising directly related to that department (1) O O Expected decrease O Expected increase (2) O O should drop the Accessories Department should keep all the departments (3) O relevent expenses are greater than the revenues which will result in an increase in operating income if the department is dropped. O revenues are greater than the relevant expenses which will result in a decrease in operating income if the department is dropped. O revenues from each department exceed variable expenses from each department 5. Suppose Italian Grill restaurant is considering whether to (1) bake bread for its restaurant in-house or (2) buy the bread from a local bakery. The chef estimates that variable costs of making each loaf include $0.54 of ingredients, $0.28 of variable overhead (electricity to run the oven), and $0.77 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Italian Grill assigns $0.96 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.70 per loaf. Read the requirements? Requirements 1. What is the unit cost of making the bread in-house? Complete the following outsourcing decision analysis to determine Italian Grill's unit cost of making the bread. Italian Grill Outsourcing Decision Direct material Direct labor Variable overhead Variable cost per unit Plus: Fixed overhead per unit Cost per unit Requirement 2. Should Italian Grill bake the bread in-house or buy from the local bakery? Why? Decision: (1) - since the (2) - of making each loaf is (3) the cost of outsourcing each loaf. Requirement 3. In addition to the financial analysis, what else should Italian Grill consider when making this decision? Italian Grill should consider the following qualitative factors before making a final decision: O A. How does the quality and freshness of the local bakery bread compare to Italian Grill bread? OB. Will the local bakery meet their delivery time requirements? O C. Both A and B OD. None of the above 6. Suppose the Baseball Hall of Fame in Cooperstown, New York, has approached Hobby - Cardz with a special order. The Hall of Fame wishes to purchase 58,000 baseball card packs for a special promotional campaign and offers $0.27 per pack, a total of $15,660. Hobby - Cardz's total production cost is $0.47 per pack, as follows: (Click the icon to view the cost information.) Hobby - Cardz has enough excess capacity to handle the special order. Read the requirements Requirement 1. Prepare a differential analysis to determine whether Hobby - Cardz should accept the special sales order. (Enter decreases to profits with a parentheses or minus sign.) Expected increase in revenues Expected increase in expenses Variable manufacturing cost: D packs x D Expected (1) in operating income Decision: (2) Requirement 2. Now assume that the Hall of Fame wants special hologram baseball cards. Hobby-Cardz will spend $5,500 to develop this hologram, which will be useless after the special order is completed. Should Hobby - Cardz accept the special order under these circumstances, assuming no change in the special pricing of $0.27 per pack? Start by preparing the analysis with the additional cost for the special hologram. (Enter decreases to profits with a parentheses or minus sign.) Expected increase in revenues Expected increase in expenses: Variable manufacturing cost: packs x Fixed manufacturing costs Expected increase in total expenses Expected (3) in operating income Decision: (4)