Deela Fashion in New York operates three departments: Men's, Women's, and Accessories. (Click the icon to view additional information.) Departmental operating income data for the third quarter of the current year are as follows: (Click the icon to view the data.) What should the company do now? . First, calculate the relevant operating income from the Shoe Department. Deela Fashion Operating Income-Shoe Department Expected revenues Expected expenses Variable expenses Fixed expenses Total expected expenses Expected relevant operating income Next, let's calculate the contribution margin of the Shoe Department. Deela Fashion Product Line Contribution Margin Income Statement For the Year Product lines Men's Women's Accessories Sales revenue $ 108,000 $ 50,000 $ 97,000 60,000 26,000 89,000 Less variable expenses Contribution margin 48,000 24,000 8,000 Shoes Under these circumstances, should Deela Fashion drop any of the departments and replace it with a Shoe Department? The company should because 1 Data table 3 4 5 D E 1 Deela Fashions 2 Product Line Contribution Margin Income Statement 3 For the Year Product lines Men's Women's Accessories Company Total 6 Sales revenue $ 108,000 $ 50,000 $ 97,000 $ 255,000 7 Less: Variable expenses 60,000 26,000 89,000 175,000 8 Contribution margin $ 48,000 $ 24,000 $ 8,000 $ 80,000 9 Less: Fixed expenses 26,000 18,000 20,000 64,000 22,000 $ 6,000 $ 10 Operating income (12,000) $ 16,000 More info Deela Fashion allocates all fixed expenses (unavoidable building depreciation and utilities) based on each department's square footage. 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 $83,000 in sales and have $54,000 of variable costs. Because the shoe business would be new to Deela Fashion, the company would have to incur an additional $6,800 of fixed costs (advertising, new shoe display racks, and other fixed costs) per quarter related to the department