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Data Table - X Total 281,000 $ Sales revenue Variable expenses Fixed expenses Total expenses Operating income (loss) Men's 111,000 $ 62,000 39,000 101,000 10,000 $ Department Women's Accessories 66,000 $ 104,000 $ 32,000 80,000 33,000 29,000 65,000 109,000 1,000 $ (5,000) $ 174,000 101,000 275,000 6,000 $ Print Done Knight Fashion store operates three departments: Men's, Women's, and Accessories. Knight Fashion allocates all fixed expenses (unavoidable building depreciation and utilities) based on the each department's floor space. If Knight 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 $86,000 in sales and $53,000 of variable costs. Because the shoe business would be new to Knight Fashion, the company would have to incur an additional $7,900 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 this 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 Knight Fashion do now? Calculate the expected increase (decrease) in operating income by replacing a department with a Shoe Department. Knight Fashion Analysis of Replacing a Department with a Shoe Department Expected increase in revenues Expected increase in expenses: Variable expenses 174,000 Fixed expenses 101,000 Increase total expenses Expected increase (decrease) in operating income Next, calculate the contribution margin of each of the existing departments. Contribution Margin $ Department Men's Department Women's Department Accessories Department Under these circumstances, should Knight Fashion drop any of the departments and replace it with a Shoe Department? Knight Fashion should consider