The VTZ department store has three major product lines: hardware,
clothing, and sporting goods. The store is considering dropping the clothing line because the income statement shows that it is operating at a loss. Note the income statement for these product lines below:
HARDWARE CLOTHING SPORTING TOTAL
Sales 10,000 15,000 25,000
Less: variable cost 6,000 8,000 12,000
Contribution margin 4,000 7,000 13,000
Less:Allocated fixed cost 1,000 1,500 2,500
Less: Direct fixed cost 2,000 6,500 4,000
Net income 1,000 (1,000) 6,500
Should the store drop the clothing line of business based on the sales and cost data above.?
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