Question: subject management accounting chadni fashion operates three departments mens womens...
Subject: Management Accounting
Chadni Fashion operates three departments: Men’s, Women’s, and Accessories. It allocates fixed expenses (building depreciation and utilities) based on the square feet occupied by each department. Departmental operating income data for the second quarter of 2020 are as follows:
|Mens Dept.||Womens Dept.||Accessories||Total|
|Operating income (loss)||$20,000||$4,000||$(5,000)||$19,000|
a) The store will remain in the same building regardless of whether any of the departments is dropped. Should Chadni Fashion drop any of the departments? Give your reason.
(b) Assumethatthefixedexpensesassignedtoeachdepartmentincludeonlydirectfixedcostsofthedepartment, e.g. salary of the department’s manager and cost of advertising directly related to that department. If Chadni Fashion drops a department, it will not incur these fixed expenses. In this case, should Chadni Fashion drop any of the departments? Give your reason.