Zena Fashions operates three departments: Men\'s, Women\'s, and Accessories. Dep

ID: 2525781 • Letter: Z

Question

Zena Fashions operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of 2018 are as follows: EEB (Click the icon to view the data.) Click the icon to view additional information.) If Zena Fashions drops a department, it will not incur these fixed costs. Under these circumstances, should Zena 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. (Enter decreases to profits with a parentheses or minus sign.) Zena Fashions Analysis of Dropping the Accessories Department Expected decrease in revenues Expected decrease in costs: Expected decrease in variable costs Expected decrease in fixed costs Expected decrease in total costs in operating income Under these circumstances, should Zena Fashions drop any of the departments? Give your reasoning. Decision: Zena Fashions V because

Explanation / Answer

Answer:

ZENA Fashion

Analysis of dropping the Accessory department

Expected decrease in revenue

-100,000

Expected decrease in cost

Expected decrease in variable cost

85000

Expected decrease in Fixed cost

22000

Expected decrease in Total cost

107000

Increase in operating income

7,000

Under this condition Zen Fashion should drop the Accessory department because of dropping Accessory department would Increase in operating income by $7000