Sales have never been good in Department C of Simran's Department Stores, For this reason, management is considering the elimination of the department. A summarized income statement for the store, by departments, for the most recent month is given below: Department Total A B C Sales $1,000,000 $500,000 $320,000 $180,000 Variable expenses 574,300 338,000 166,000 70,300 Contribution margin 425,700 162,000 154,000 109,700 Fixed expenses Salaries 49,000 18,000 16,000 15,000 Utilities 6,200 2,600 2,000 1,600 Direct advertising 89,000 32,000 27,000 30,000 General advertising 1 25,000 12,500 8,000 4,500 Rent on building 2 38,000 16,000 12,000 10,000 Employment taxes 3 4,900 1,800 1,600 1,500 Depreciation of fixtures 36,000 12,000 15,000 9,000 Insurance and property taxes On inventory and fixtures 7,900 2,300 4,000 1,600 General office expenses 54,000 18,000 18,000 18,000 Service department expenses 81,000 27,000 27,000 27,000 391,000 142,200 130,600 118,200 Net income (loss) $34,700 $19,800 $23,400 -$8,500 1 Allocated on the basis of sales dollars 2 Allocated on the basis of space occupied 3 Based on salaries paid directly in each department The following additional information is available: a. If department C is eliminated, the utilities bill will be reduced by $700 per month. b. All departments are housed in the same building. The store leases the entire building at a fixed annual rental rate. c. One of the employees in department C is Fred Jones, who has been with the company for many years. Mr. Jones will be transferred to another department if Department C is eliminated. His salary is $1,000 per month. Transferring Mr. Jones to the other department will allow that department to avoid hiring an new employee that would have been paid $800 per month. d. The fixtures in department C would be transferred to the other departments if department C is eliminated. One-fourth of the insurance and property taxes in Department C relates to the fixtures of the department. e. The company has two service departments purchasing and warehouse.. If Department C is eliminated, one employee in the warehouse can be discharged. This employees salary is $800 per month. General office expenses will not change, f. The space being occupied by department C could be subleased at a rental rate of $48,000 per month. g. If department C is eliminated, the company expects department As sales to increase by 10% and department Bs sales to decrease by 5%. Required Do you recommend the elimination of department C. Use incremental analysis.