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Part 2: Second Time Around sells clothing, shoes, and accessories at a suburban location near Dallas. Information for the just concluded calendar year follows. Sales
Part 2: Second Time Around sells clothing, shoes, and accessories at a suburban location near Dallas. Information for the just concluded calendar year follows. Sales Less. Variable costs Fixed costs Total costs Operating income (loss) Clothing $850,000 $510,000 290.000 $800.000 $50.000 Shoes $320,000 $270,000 70.000 $340,000 $(20.000 Accessories $150,000 $82,500 42.000 $124.500 $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. Second Time Around 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: Determine whether the shoe department should be closed
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