Millennium 21 Sells Clothing, Shoes, and Accessories at a Downtown

Millennium 21 sells clothing, shoes, and accessories at a downtown location in Montreal, Quebec. Information for the year ended December 31, 2012 follows: $\begin{array}{l}\begin{array}{lll}\\\text { Sales}\\\text { Variable costs}\\\text { Fixed costs}\\\text { Total costs}\\\text { Operating Income (Loss)}\\\end{array}\begin{array}{lll}\underline{\text { Clothing }}\\\$ 650,000\\390,000\\\underline{200,000}\\\underline{590,000}\\\underline{960,000}\end{array}\begin{array}{lll}\underline{\text { Shoes }} \\ \$ 220,000 \\150,000 \\\underline{100,000}\\\underline{250,000} \\\underline{(\$ 30,000)}\\\end{array}\begin{array}{lll}\underline{\text { Accessories }}\\{\$ 125,000}\\65,000 \\\underline{45,000} \\\underline{110,000}\\\underline{ \$ 15,000}\end{array}\end{array}$ Management is considering closing the shoe operation because of the loss and expanding the space that is currently devoted to accessories sales. A salaried salesperson in the shoe department who earns $40,000 will be terminated; however, all other departmental fixed costs will continue to be incurred.
Millennium 21 will spend $20,000 on remodeling costs and anticipates that accessories sales will increase by $80,000. This additional sales revenue is expected to generate a 25% contribution margin for the firm. Finally, because clothing customers often purchased shoes and feel strongly about "one-stop shopping," clothing sales are expected to fall by 10% if the shoe department is closed.
Required:
Determine whether the shoe department should be closed.
The company is currently earning $45,000 ($60,000 - $30,000 + $15,000). If the shoe department is closed, total income amounts to only $10,500 as shown below, meaning the department should remain in operation.