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Question: subject management accounting chadni fashion operates three departments mens womens...

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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
Sales revenue $105,000 $54000 $100,000 $259,000
Variable expenses 60,000 30,000 80,000 170,000
Fixed expenses 25,000 20,000 25,000 70,000
Total expenses 85,000 50,000 105,000 240,000
Operating income (loss) $20,000 $4,000 $(5,000) $19,000

 

Required:

 

  1. 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.

  2. (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. 

 

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