CONTINUE / DISCONTINUE DEPARTMENT OR PRODUCT The figures of the most recent Income Statement for the mens formal wear of Qatar Department Store is given below (all amounts in $): Sales 500,000 Variable Cost 200,000 Fixed Cost Salaries / Wages 150,000 Insurance on inventories 10,000 Depreciation of fixtures 65,000 Advertising 100,000 325,000 Due to its poor showing, mgt. is thinking about dropping the dept. If the dept. is dropped, a make work position will be found for one long-time employee who is due to retire in several years. That employees salary is $30,000. The fixtures in the dept would have NO resale value and would be hauled to the county dump. Requirement Prepare an analysis, (using the formats on next page) to conclude whether the dept. should be dropped/continue? 3 Marks(1.5 each for both formats) Answers Format $ Contribution Margin lost if dept. is dropped ---------------- A Add/Less avoidable Fixed Costs ---------------- ---------------- ---------------- ---------------- B Increase / (Decrease) in Operating Income ---------------- (A B) ---------------------------------------------------------------------------------------------------------------- Continue Dept. Discontinue Dept. Difference: Income (Inc / Dec) Sales ----------------- ----------------- ---------------- Variable Cost ----------------- ----------------- ---------------- ????? ----------------- ----------------- ---------------- Fixed Cost Salaries & Wages ----------------- ----------------- ---------------- Insurance on inventories ----------------- ----------------- ---------------- Depreciation of Equipment ----------------- ----------------- ---------------- Advertising ----------------- ----------------- ---------------- ????? ----------------- ----------------- ---------------- ????? ----------------- ----------------- ---------------- ----------------------------------------------------------------------------------------------------------------