Mara Fashions operates three departments: Men\'s, Women\'s, and Accessories. Dep
ID: 2576829 • 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: (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 Data Table Expected decrease in revenues Expected decrease in costs: Expected decrease in variable costs Expected decrease in fixed costs Expected decrease in total costs Mara Fashions Income Statement For the Quarter Ended September 30, 2018 in operating income Department Men's Women's Total 58,000 S 30,000 28,000 16,000 12,000 S 105,000 $ 92,000 Net Sales Revenue ariable Costs Contribution Margin Fixed Costs 111,000 S 56,000 55,000 23,000 32,000 $ 274,000 178,000 96,000 63,000 33,000 More Info 13,000 24,000 (11,000) S Assume that the fixed costs assigned to each department include only direct fixed costs of the department: Salary of the department's manager Cost of advertising directly related to that department PrintDone PrintDoneExplanation / Answer
Solution:
Since the fixed costs include only direct fixed costs. It means if the department is dropped the fixed cost related to the department will not incurred. Since it is directly related to the department.
Analysis of Dropping the Accessories Department
Mara Fashions
Analysis of Dropping the Accessories Department
Expected decrease in revenues
($105,000)
Expected decrease in costs;
Expected decrease in variable costs
92000
Expected decrease in fixed costs
24000
Expected decrease in total costs
116000
Increase in Operating Income
$11,000
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Mara Fashions
Analysis of Dropping the Accessories Department
Expected decrease in revenues
($105,000)
Expected decrease in costs;
Expected decrease in variable costs
92000
Expected decrease in fixed costs
24000
Expected decrease in total costs
116000
Increase in Operating Income
$11,000