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Giseppe Fashion store operates three departments: Men's, Women's, and Accessories. Giseppe Fashion allocates all fixed expenses (unavoidable building depreciation and utilities) based on the each
Giseppe Fashion store operates three departments: Men's, Women's, and Accessories. Giseppe Fashion allocates all fixed expenses (unavoidable building depreciation and utilities) based on the each department's floor space. If Giseppe Fashion drops one of the current departments, it plans to replace the dropped department with a Shoe Department. The company expects the Shoe Department to produce $82,000 in sales and $52,000 of variable costs. Because the shoe business would be new to Giseppe Fashion, the company would have to incur an additional $7,000 of fixed costs (advertising, new shoe display racks, and so forth) per quarter related to the department. Departmental operating income data for the third quarter of the current year are as follows: E: (Click the icon to view the data.) The store will remain in the same building regardless of the decision. What should Giseppe Fashion do now? Calculate the expected increase (decrease) in operating income by replacing a department with a Shoe Department. (Use parentheses or a minus sign to enter a decrease in operating income.) Giseppe Fashion Analysis of Replacing a Department with a Shoe Department Operating income data Expected increase in revenues Expected increase in expenses Variable expenses Men's Department Women's Accessories 64,000 $ 103,000 $ Total Fixed expenses $ Sales revenue... 106,000 $ 273,000 Increase in total expenses Variable expenses 61,000 26,000 36,000 33,000 84,000 22,000 181,000 81,000 Expected increase (decrease) in operating income Fixed expenses. 87,000 69,000 Total expenses 106,000 262,000 $ 19,000 $ (5,000) $ (3,000) $ 11,000 Operating income (loss)
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