Reference no: EM132448687

Question - The VTZ department store has three major product lines: hardware, clothing, and sporting goods. The store is considering dropping the clothing line because the income statement shows that it is operating at a loss. Note the income statement for these product lines below:

HARDWARE CLOTHING SPORTING TOTAL

Sales 10,000 15,000 25,000

Less: variable cost 6,000 8,000 12,000

Contribution margin 4,000 7,000 13,000

Less:Allocated fixed cost 1,000 1,500 2,500

Less: Direct fixed cost 2,000 6,500 4,000

Net income 1,000 (1,000) 6,500

Required - Should the store drop the clothing line of business based on the sales and cost data above?