The Shoe Department at the El Paso Department Store is being considered for closure. The following information relates to shoe activity: $\begin{array}{cr}
\text { Sales revenue }&\$350,000\
\text { Variable costs: }\
\text { Cost of goods sold } & 280,000 \
\text { Sales commissions } & 30,000 \
\text { Fixed operating costs } & 90,000
\end{array}$ If 70% of the fixed operating costs are avoidable, should the Shoe Department be closed?

Question

Quizplus · Accepted Answer

If the Shoe Department is closed, El Paso will save 70% of its fixed operating costs, which is $90,000 x 70% = $63,000. However, it will also lose its sales revenue of $350,000. Therefore, El Paso would be better off by $350,000 - $63,000 = $287,000.

The Shoe Department at the El Paso Department Store Is