The Shoe Department at the El Paso Department Store is being considered for clos

ID: 2599312 • Letter: T

Question

The Shoe Department at the El Paso Department Store is being considered for closure. The following information relates to shoe activity:

If 80% of the fixed operating costs are avoidable, should the Shoe Department be closed?

Yes, El Paso would be better off by $36,600.

Yes, El Paso would be better off by $55,000.

No, El Paso would be worse off by $18,600.

No, El Paso would be worse off by $37,000.

None of these.

Sales revenue $ 370,000 Variable costs: Cost of goods sold 300,000 Sales commissions 33,000 Fixed operating costs 92,000

If shut down

can save = varaible manufacturing cost + specific fixed cost

= (300000+33000) + (92000 * 80%)

= $406600

loss = loss of revenue

= $370000

Net = $406600 -$370000

= $36600

Hence, EI Paso would be better off by $36,600 if shut down

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