Fanning 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	$	650,000			$	470,000			$	180,000
Cost of goods sold		(268,000	)			(178,400	)			(99,375	)
Gross margin		382,000				291,600				80,625
Department managers salary		(57,000	)			(46,000	)			(26,000	)
Sales commissions		(111,200	)			(80,600	)			(30,400	)
Rent on store lease		(26,000	)			(26,000	)			(26,000	)
Store utilities		(9,000	)			(9,000	)			(9,000	)
Net income (loss)	$	178,800			$	130,000			$	(10,775	)

Required

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

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

3. 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.

4. 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 $37,000. Would this information affect the decision that you made in Requirement a?

Contribution to profit (loss) Should the children's department be eliminated? Will the decision made in Requirement a be affected