Making dropping a product and product-mix decisions Deela Fashions operates three departments: Men's, Women's, and Accessories. Departmental operating income data for the third quarter of 2012 are as follows:
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DEELA FASHIONS
Income Statement
For the quarter ended September 30, 2012
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Department
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Men's
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Women's
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Accessories
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Total
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Sales revenue
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$108,000
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$55,000
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$ 100,000
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$
263,000
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Variable expenses
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58,000
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30,000
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92,000
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180,000
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Fixed expenses
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26,000
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21,000
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26,000
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73,000
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Total expenses
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84,000
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51,000
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118,000
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253,000
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Operating income (loss)
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$24,000
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$4,000
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$ (18,000)
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$ 10,000
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Assume that the fixed expenses assigned to each department include only direct fixed costs of the department:
- Salary of the department's manager
- Cost of advertising directly related to that department
If Deela Fashions drops a department, it will not incur these fixed expenses.
Requirement
1. Under these circumstances, should Deela Fashions drop any of the departments? Give your reasoning.