Better Beds Ltd operates three departments. The decor department has not been performing very well and has shown a loss for the past 3 years according to the company’s statement of financial performance. Competition in the decor line is strong and the margins are low. The departmental statement of financial performance for the year ended 30 June 2025 was as follows.

Indirect expenses of $58 000 are avoidable if the accessories department is eliminated.
Required

(a) Calculate the departmental margin for the decor department.

(b) Should the decor department be closed down? Justify your answer.

(c) Prepare a statement of financial performance for the two remaining departments, assuming the accessories department is dropped, to confirm your results in requirement (b).

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Income Sales BETTER BEDS LTD Statement of financial performance for the year ended 30 June 2025 Less: Cost of sales Gross profit Decor department $588 000 466 000 Other two departments $1 500 200 671 200 829 000 Direct expenses Indirect expenses Profit (loss) 122 000 (56 900) (78 600) $ (13 500) (235 500) (198 200) $ 395 300