Mara Fashions operates three departments: Men\'s, Women\'s, and Accessories. Dep
ID: 2525344 • Letter: M
Question
Mara Fashions operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of 2018 are as follows: EEB (Click the icon to view the data.) (Click the icon to view additional information.) If Mara Fashions drops a department, it will not incur these fixed costs. Under these circumstances, should Mara Fashions drop any of the departments? Give your reasoning. Begin by completing the following analysis to determine the increase or decrease in operating income from dropping the Accessories Department, the only Department showing an operating loss this quarter. (Enter decreases to profits with a parentheses or minus sign.) Mara Fashions Analysis of Dropping the Accessories Department Expected decrease in revenues Expected decrease in costs: Expected decrease in variable costs Expected decrease in fixed costs Expected decrease in total costs income Under these circumstances, should Mara Fashions drop any of the departments? Give your reasoning. Decision: Mara Fashions V becauseExplanation / Answer
1) Mara Fashions
Analysis of dropping the Accessories Department (Amts in $)
As fixed costs will not incurred if any department drops off, the whole fixed costs will be considered and relevant for the given decision.
As there is an expected increase in operating income of $9,000, Mara fashions should drop its Accessories department.
Expected decrease in revenues (101,000) Expected decrease in costs: Expected decrease in variable costs 87,000 Expected decrease in fixed costs 23,000 Expected decrease in total costs 110,000 Expected Increase in Operating Income 9,000