Linda Fashion operates three departments: Men\'s, Women\'s, and Accessories. Dep

Question

Linda Fashion operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of the current year are as follows: ? (Click the icon to view the data ) 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 If Linda Fashion discontinues a department, it will not incur these fixed expenses. Under these circumstances, should Linda Fashion discontinue any of the departments? Give your reason Complete the following analysis to determine the increase or decrease in operating income of dropping the Accessories Department, the only department showing an operating loss this quarter Incremental Analysis for Discontinuation Decision Total Data Table Contribution margin lost if Accessories is discontinued Less: Fixed cost savings if Accessories is discontinued Operating income Under these circumstances, should Linda Fashion drop any of the departments? Decision: Linda Fashion if Accessories is discontinued Linda Fashions Product Line Contribution Margin Income Statement For the Year Product lines Accesspries

Explanation / Answer

Incremental analysis of Discontinuation Decision Contribution margin lost of Accessories is discontinued -6000 Less: Savings in fixed cost 25000 Operating Income Increasse if Accessories is discontinued 19,000 Decision: Linda Fashion shall drop the Accessories department.

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