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 third quarter of 2007 are as follows:
(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) Assume that the fixed expenses assigned to each department include only direct fixed costs of the department, 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.
Apex produces standard and deluxe sunglasses:
The company has 15,000 machine hours available. In one machine hour, Apex can produce either 70 pairs of the standard model or 30 pairs of the deluxe model. Which model should Apex emphasize? Why?