Franklin 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:

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 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 $39,000. Would this information affect the decision that you made in Requirement a?

Children' s Department $ 180,000 (100,375) Men' s Women's Department $ 670,000 (269,000) 401,000 (59,000) (113,200) (28,900) (11,000) $ 189,800 Department $ 490,000 Sales Cost of goods sold Gross margin Department manager's salary Sales commissions Rent on store lease Store utilities Net income (loss) (179,200) 310,800 (48,000) (82,600) (28,000) (11,000) 79,625 (28,000) (31,400) (28,900) (11,000) $ (18,775) $ 141,200