1.

Baird Boot Co. sells mens, womens, and childrens boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the mens department has a sales staff of nine employees, the manager of the womens department has six employees, and the manager of the childrens department has three employees. All departments are housed in a single store. In recent years, the childrens department has operated at a net loss and is expected to continue to do so. Last years income statements follow:

	Mens Department				Womens Department				Childrens Department
Sales	$	620,000			$	440,000			$	160,000
Cost of goods sold		(266,500	)			(177,200	)			(97,875	)
Gross margin		353,500				262,800				62,125
Department managers salary		(54,000	)			(43,000	)			(23,000	)
Sales commissions		(108,200	)			(77,600	)			(28,900	)
Rent on store lease		(23,000	)			(23,000	)			(23,000	)
Store utilities		(6,000	)			(6,000	)			(6,000	)
Net income (loss)	$	162,300			$	113,200			$	(18,775	)

Required

a. Calculate the contribution margin. Determine whether to eliminate the childrens department.

b-1. Calculate the net income for the company as a whole with the children's department.

b-2. Confirm the conclusion you reached in Requirement a by preparing income statements for the company as a whole with and without the childrens department.

c. Eliminating the childrens department would increase space available to display mens and womens boots. Suppose management estimates that a wider selection of adult boots would increase the stores net earnings by $34,000. Would this information affect the decision that you made in Requirement a?