Exercise 1.

The most recent income statements for the mens formal wear department of Merrils Department Store is given Below.

sales......................................................................500,000

Variable Expense...................................................200,000

Contribution Margin................................................300,000

Fixed Expenses

Salaries and Wages................150,000

insurance on invemtories........10,000

depreciation of fixtures............65,000

advertising..............................100,000..................325,000

net operating income (loss)...................................(25,000)

*Six year remaining useful life, with little or no current resale value

management is thinking about dropping the mens formal wear department. if the department is dropped a make work position will be found for one long time employee whi is due to retire in several years. that employees salary is 30,000. the fixtures in the department would have no resale value and would be hauled to the county dump.

prepare an analysis, using the following form to determine whether the department should be dropped.