Assume that the fixed expenses assigned to each department

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Making dropping a product and product-mix decisions  Deela Fashions operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of 2012 are as follows:

DEELA FASHIONS

Income Statement

For the quarter ended September 30, 2012

 

Department

 

Men's

Women's

Accessories

Total

Sales revenue

$108,000

$55,000

$ 100,000

$

263,000

Variable expenses

58,000

30,000

92,000

180,000

Fixed expenses

26,000

21,000

26,000

73,000

Total expenses

84,000

51,000

118,000

253,000

Operating income (loss)

$24,000

$4,000

$ (18,000)

$ 10,000

Assume that the fixed expenses 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

If Deela Fashions drops a department, it will not incur these fixed expenses.

Requirement

1. Under these circumstances, should Deela Fashions drop any of the departments? Give your reasoning.

Reference no: EM13568945

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