Emily has produced the following income statement for the ladies' shoe department of a large department store:

Sales$1,500,000

Less: variable expense700,000

Contribution margin800,000

Less: fixed expenses:

Wages$550,000

Insurance on inventory20,000

Advertising200,000770,000

Net operating income$30,000

Compared with other departments, the ladies' shoe department has poor profitability.Management is considering dropping the department entirely.If the department is dropped, a job has to be created elsewhere for one employee who has been with the firm for many years.This employee has an annual salary of $40,000 and many years until retirement.

Required:

Prepare an analysis to determine whether the ladies' shoe department should be dropped, and make a recommendation to management about this decision.