Replace a Department

Assume once again that all fixed costs are unavoidable. If the company discontinues one of the current departments, it plans to replace the discontinued department with a Shoe Department. The company expects the Shoe Department to produce $84,000 in sales and have $47,000 of variable costs. Because the shoe business would be new to Devine Fashion, the company would have to incur an additional $7,100 of fixed costs (advertising, new shoe display racks, and other fixed costs) per quarter related to the department. What should the company do now?

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