Linda Fashion operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of 2018 are as follows:

Linda Fashions Product Line Contribution Margin Income Statement For the Year
	Product lines
	Men's	Women's	Accesories	Company Total
Sales revenue	$106,000	$52,000	$98,000	$256,000
Less: Variable expenses	59,000	31,000	92,000	182,000
Contribution margin	$47,000	$21,000	$6,000	74,000
Less: Fixed expenses	24,000	18,000	25,000	67,000
Operating income	$23,000	$3,000	$(19,000)	$7,000

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

Assume that the fixed expenses assigned to each department include only direct fixed costs of the department (rather than unavoidable fixed costs).

Salary of the department's manager

Cost of advertising directly related to that department

Answer rating: 100% (QA)

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