Long Steps Ltd operates three departments, including a department that has consistently shown losses. For the year just ended, the hiking supplies department showed the following performance.

Required:
Should the hiking supplies department be eliminated? Support your answer with calculations showing the effect on storewide profits of eliminating the department.

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Sales $76 000 Cost of sales 20 000 Gross profit Expenses Loss 56 000 98 800 $ (42 800) The expenses include allocated indirect expenses amounting to $52 600, which will be incurred whether the department is operated or not. The remainder of the expenses are direct, but include $20 000 that will have to be reassigned to another department because that amount is the salary of the owner's daughter, who will be kept employed regardless of the decision made about the hiking supplies department.