Gila Fashion operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of the current year are as follows: (Click the icon to view the data.) Assume that the fixed expenses assigned to each department include only direct fixed costs of the department (rather than unavoidable fixed costs): Salary of the department's manager Cost of advertising directly related to that department If Gilla Fashion discontinues a department, it will not incur these fixed expenses. Under these circumstances, should Gilla Fashion discontinue any of the departments? Give your reason. Complete the following analysis to determine the increase or decrease in operating income of dropping the Accessories Department, the only department showing an operating loss this quarter. Incremental Analysis for Discontinuation Decision Contribution margin lost if Accessories is discontinued Total Data table Less: Fixed cost savings if Accessories is discontinued if Accessories is discontinued Operating income Under these circumstances, should Gila Fashion drop any of the departments? Decision: Gila Fashion Calculator A D E 1 Gila Fashions 2 Product Line Contribution Margin Income Statement 3 For the Year 4 Product lines 5 Men's Women's Accessories Company Total 6 Sales revenue $ 110,000 $ 54,000 $ 102,000 $ 266,000 7 Less: Variable expenses 61,000 28,000 92,000 181,000 8 Contribution margin $ 49,000 $ 26,000 $ 10,000 $ 85,000 9 Less: Fixed expenses 24,000 19,000 25,000 68,000 $ 25,000 $ 7,000 $ (15,000) $ 17,000 10 Operating Income - X Gila Fashion operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of the current year are as follows: (Click the icon to view the data.) Assume that the fixed expenses assigned to each department include only direct fixed costs of the department (rather than unavoidable fixed costs): Salary of the department's manager Cost of advertising directly related to that department If Gilla Fashion discontinues a department, it will not incur these fixed expenses. Under these circumstances, should Gilla Fashion discontinue any of the departments? Give your reason. Complete the following analysis to determine the increase or decrease in operating income of dropping the Accessories Department, the only department showing an operating loss this quarter. Incremental Analysis for Discontinuation Decision Contribution margin lost if Accessories is discontinued Total Data table Less: Fixed cost savings if Accessories is discontinued if Accessories is discontinued Operating income Under these circumstances, should Gila Fashion drop any of the departments? Decision: Gila Fashion Calculator A D E 1 Gila Fashions 2 Product Line Contribution Margin Income Statement 3 For the Year 4 Product lines 5 Men's Women's Accessories Company Total 6 Sales revenue $ 110,000 $ 54,000 $ 102,000 $ 266,000 7 Less: Variable expenses 61,000 28,000 92,000 181,000 8 Contribution margin $ 49,000 $ 26,000 $ 10,000 $ 85,000 9 Less: Fixed expenses 24,000 19,000 25,000 68,000 $ 25,000 $ 7,000 $ (15,000) $ 17,000 10 Operating Income - X