Consider Gila Fashions from S25-3. Assume that the fixed expenses assigned to each department include only:

- Salary of the department's manager

- Cost of advertising directly related to that department 

Gila Fashions will not incur these fixed expenses for any department that is dropped. Under these circumstances, should Gila Fashions drop any of the departments? Give your reason.

Exercise S25-3

Gila Fashions operates three departments: Men's, Women's, and Accessories. Gila Fashions allocates fixed expenses (building depreciation and utilities) based on the square feet occupied by each department. Departmental operating income data for the third quarter of 2009 are as follows:

Should Gila Fashions drop any of the departments? Give your reason.

Transcribed Image Text:

Sales revenue Variable expenses Fixed expenses Total expenses Operating income (loss) Men's Department Women's Accessories Total $ 105,000 5 54,000 $ 100,000 $259,000 60,000 30,000 90,000 180,000 25,000 20,000 25,000 85,000 50,000 115,000 $ 20,000 $ 4,000 S (15,000) 70,000 250,000 $ 9,000