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Devine Fashion in Chicago operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of the current year are as
Devine Fashion in Chicago operates three departments: Men's, Women's, and Accessories.
Departmental operating income data for the third quarter of the current year are as follows:
What should the company do now?
Devine 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 $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 shoe display racks, and other fixed costs) per quarter related to the department
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