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Fanning Boot Co. sells men's, women's, and children's boots. For each type of boot sold, it operates a separate department that has its own manager.
Fanning Boot Co. sells men's, women's, and children's boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men's department has a sales staff of nine employees, the manager of the women's department has six employees, and the manager of the children's department has three employees. All departments are housed in a single store In recent years, the children's department has operated at a net loss and is expected to continue to do so. Last year's income statements follow: Children's Department Men s Women' s Department Sales Cost of goods sold Gross margin Department manager' s salary Sales commissions Rent on store lease Store utilities Department 650,000 268,000 382,000 (57,000) (111,200) (26,000) $ 470,000 $180,000 178,400)(99,375 80,625 291,600 (46,000) (80,600) (26,000) (26,000) (30,400) (26,000) 9,000 $ 178,800 9,000 9,000 Net income (loss) 130,000 $ (10,775) Required a. Calculate the contribution margin. Determine whether to eliminate the children's 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 without the children's department. c. Eliminating the children's department would increase space available to display men's and women's boots. Suppose management estimates that a wider selection of adult boots would increase the store's net earnings by $37,000. Would this information affect the decision that you made in Requirement a? Fanning Boot Co. sells men's, women's, and children's boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men's department has a sales staff of nine employees, the manager of the women's department has six employees, and the manager of the children's department has three employees. All departments are housed in a single store In recent years, the children's department has operated at a net loss and is expected to continue to do so. Last year's income statements follow: Children's Department Men s Women' s Department Sales Cost of goods sold Gross margin Department manager' s salary Sales commissions Rent on store lease Store utilities Department 650,000 268,000 382,000 (57,000) (111,200) (26,000) $ 470,000 $180,000 178,400)(99,375 80,625 291,600 (46,000) (80,600) (26,000) (26,000) (30,400) (26,000) 9,000 $ 178,800 9,000 9,000 Net income (loss) 130,000 $ (10,775) Required a. Calculate the contribution margin. Determine whether to eliminate the children's 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 without the children's department. c. Eliminating the children's department would increase space available to display men's and women's boots. Suppose management estimates that a wider selection of adult boots would increase the store's net earnings by $37,000. Would this information affect the decision that you made in Requirement a
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