The Shoe Department at the El Paso Department Store is being considered for clos

ID: 2376110 • Letter: T

Question

The Shoe Department at the El Paso Department Store is being considered for closure. The following information relates to shoe activity:

If 70% of the fixed operating costs are avoidable, should the Shoe Department be closed?

A. Yes, El Paso would be better off by $24,900.

B. Yes, El Paso would be better off by $54,000.

C. No, El Paso would be worse off by $13,900.

D. No, El Paso would be worse off by $43,000.

E. None of these.

Sales revenue $ 370,000 Variable costs: Cost of goods sold 291,000 Sales commissions 36,000 Fixed operating costs 97,000

Hi,

Please find the answer as follows:

Current Net Income/Loss = 370000 - 291000 - 36000 - 97000 = -54000

If shoe department is closed, net loss would be = 97000*.30 = -29100

Difference = 54000 - 29100 = 24900

Option A is correct.

Thanks.

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