Decision whether to discontinue a department Devine Fashion in Chicago operates three departments: Men's, Women's, and...

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Decision whether to discontinue a department Devine Fashion in Chicago operates three departments: Men's, Women's, and Accessories. Devine Fashions allocates all fixed expenses (unavoidable building depreciation and utilities) to the departments. Annnual departmental operating income data for the current year are as follows: Sales revenue Less: variable expenses Contribution margin Less: fixed expenses Operating income Men's Women's Accessories Total $105,000 $52,000 90,000 176,000 $101,000 $258,000 58,000 28,000 47,000 24,000 11,000 82,000 25,000 22,000 26,000 73,000 $22,000 $2,000 ($15,000) $9,000 If the company discontinues one of the current departments, it plans to replace the discontinued department with a Shoe Department. The company expects the Shoe Department to produce $84,000 in sales and have $47,000 of variable costs. Because the shoe business would be new to Devine Fashion, the company would have to incur an additional $7,100 of fixed costs (advertising, new show display racks, and other fixed costs) each year related to the department. What would be the effect on operating income if Devine Fashion discontinues the Accessories Department and replaces it with a Shoe Department? A. Increase of $59,100 B. Increase of $18,900 C. Increase of $44,900 D. Increase of $29,900 Decision whether to discontinue a department Devine Fashion in Chicago operates three departments: Men's, Women's, and Accessories. Devine Fashions allocates all fixed expenses (unavoidable building depreciation and utilities) to the departments. Annnual departmental operating income data for the current year are as follows: Sales revenue Less: variable expenses Contribution margin Less: fixed expenses Operating income Men's Women's Accessories Total $105,000 $52,000 90,000 176,000 $101,000 $258,000 58,000 28,000 47,000 24,000 11,000 82,000 25,000 22,000 26,000 73,000 $22,000 $2,000 ($15,000) $9,000 If the company discontinues one of the current departments, it plans to replace the discontinued department with a Shoe Department. The company expects the Shoe Department to produce $84,000 in sales and have $47,000 of variable costs. Because the shoe business would be new to Devine Fashion, the company would have to incur an additional $7,100 of fixed costs (advertising, new show display racks, and other fixed costs) each year related to the department. What would be the effect on operating income if Devine Fashion discontinues the Accessories Department and replaces it with a Shoe Department? A. Increase of $59,100 B. Increase of $18,900 C. Increase of $44,900 D. Increase of $29,900