Copyright

The Shoe Department at the Baton Rouge Department Store is being considered for closure. The...

Question:

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

Sales Revenue $350,000
Variable Costs:
Cost of Goods Sold $280,000
Sales Commissions $30,000
Fixed operating Costs $90,000

If 70% of the fixed operating costs are avoidable, should the Shoe Department be closed?

Shutdown or Continue

In relevant costing, we need to take into consideration relevant costs in making decisions for the company.

Answer and Explanation:

Yes. The Shoe department must be closed in order to save $23,000.

Lost revenue 350,000
Cost to be saved
Cost of sales 280,000
Sales Commission 30,000
Fixed cost (70%) 63,000
Costsaved 373,000
Net Saves 23,000

Learn more about this topic:

Loading...
Relevant Costs in Eliminating a Product or Segment

from Accounting 301: Applied Managerial Accounting

Chapter 9 / Lesson 12
1.1K

Related to this Question

Explore our homework questions and answers library