1. Fashion Clothing sells clothing, shoes, and accessories at a location in Los Angeles, CA. Information for the just concluded calendar year follows.

Clothing Shoes Accessories

Sales $850,000 $320,000 $150,000

Less: Variable costs $510,000 $270,000 $82,500

Fixed costs 290,000 70,000 42,000

Total costs $800,000 $340,000 $124,500

Operating income (loss)$50,000 $(20,000) $25,500

Management is considering closing the shoe operation because of the loss and expanding the space that is currently devoted to accessories sales. A salaried salesperson in the shoe department who earns $45,000 will be terminated; however, all other departmental fixed costs will continue to be incurred. TWU Clothing will spend $16,000 on remodeling costs and anticipates that accessories sales will increase by $70,000. This additional sales revenue is expected to generate a 35% contribution margin for the firm. Finally, because clothing customers often purchased shoes and feel strongly about "one-stop shopping," clothing sales are expected to fall by 15% if the shoe department is closed.

Required:

Your supervisor has asked you to determine whether the shoe department should be closed and the effect upon income if closed.