Question

's, and Accesso- ding depreciation and 58-6 Decide whether to discontinue a department (Learning Objective 4) Devine Fashion in Chicago operates three departments: Men's, Women's, and Acce ries. Devine Fashion allocates all fixed expenses (unavoidable building depreciation utilities) based on each department's square footage. Departmental operating incom data for the third quarter of the current year are as follows: WN Devine Fashions Product Line Contribution Margin Income Statement For the Year $ Men's 105,000 58,000 47,000 25.000 22,000 7 Sales revenue 8 Less: Variable expenses 9 Contribution margin 10 Less: Fixed expenses 11 Operating income Product lines Women's $ 52,000 28.000 $ 24,000 22,000 $ 2,000 Accessories $ 101,000 90,000 $ 11,000 26,000 $ (15,000) Company Total $ 258,000 $ 176,000 $ 82,000 $ 73,000 $ 9,000 S $ 12 The store will remain in the same building regardless of whether any of the depart- ments are discontinued. Should Devine Fashion discontinue any of the departments? Give your reason.

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Answer 1

Fixed expenses of the company are unavoidable, hence fixed expenses will not decrease even if any of the department is discontinued.

Since all the departments are providing positive contributions, hence discontinuing any of the department would result in loss of contribution from that department and ultimately decrease in operating income of the company.

Thus, none of the departments should be discontinued.

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