Fashions operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of 2024 are as follows: 1(Click the icon to view the data.) 2(Click the icon to view additional information.) If Sheila Fashions drops a department, it will not incur these fixed costs. Under these circumstances, should Sheila 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.) Sheila 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 (1) in operating income Under these circumstances, should Sheila Fashions drop any of the departments? Give your reasoning. Decision: Sheila Fashions (2) because (3) 1: Data Table Sheila Fashions Income Statement For the Quarter Ended September 30, 2024 Department Men's Women's Accessories Total Net Sales Revenue $111,000 $57,000 $98,000 $266,000 Variable Costs 56,000 34,000 89,000 179,000 Contribution Margin 55,000 23,000 9,000 87,000 Fixed Costs 19,000 17,000 27,000 63,000 Operating Income (Loss) $36,000 $6,000 $(18,000) $24,000 2: More Info 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Fashions operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of

2024

are as follows:

1(Click

the icon to view the data.)

2(Click

the icon to view additional information.)

Sheila

Fashions drops a department, it will not incur these fixed costs. Under these circumstances, should

Sheila

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.)

Sheila 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
	(1)	in operating income

Under these circumstances, should

Sheila

Fashions drop any of the departments? Give your reasoning.

Decision:

Sheila

Fashions

(2)

because

(3)

1: Data Table

Sheila Fashions
Income Statement
For the Quarter Ended September 30, 2024
	Department
	Men's	Women's	Accessories	Total
Net Sales Revenue	$111,000	$57,000	$98,000	$266,000
Variable Costs	56,000	34,000	89,000	179,000
Contribution Margin	55,000	23,000	9,000	87,000
Fixed Costs	19,000	17,000	27,000	63,000
Operating Income (Loss)	$36,000	$6,000	$(18,000)	$24,000

2: More Info

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

(1)

Expected decrease

Expected increase

(2)

should drop the Accessories Department

should keep all the departments

(3)

relevent expenses are greater than the revenues which will result in an increase in operating income if the department is dropped.

revenues are greater than the relevant expenses which will result in a decrease in operating income if the department is dropped.

revenues from each department exceed variable expenses from each department.

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