Problem 13-26A (Algo) Eliminating a segment LO 13-4

Benson Boot Co. sells mens, womens, and childrens boots. For each type of boot sold, it operates a separate department that has its own manager. 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	$	630,000			$	450,000			$	170,000
Cost of goods sold		(267,000	)			(177,600	)			(98,375	)
Gross margin		363,000				272,400				71,625
Department managers salary		(55,000	)			(44,000	)			(24,000	)
Sales commissions		(109,200	)			(78,600	)			(29,400	)
Rent on store lease		(24,000	)			(24,000	)			(24,000	)
Store utilities		(7,000	)			(7,000	)			(7,000	)
Net income (loss)	$	167,800			$	118,800			$	(12,775	)

Required

1. a. Calculate the contribution to profit. 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 $35,000. Would this information affect the decision that you made in Requirement a?

Problem 13-26A (Algo) Eliminating a segment LO 13-4 Benson 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. 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. Sales Cost of goods sold Gross margin Department manager's salary Sales commissions Rent on store lease Store utilities Net income (loss) Men's Department $ 630,000 (267,000) 363,000 (55,000) (109,200) (24,000) (7,000) $ 167,800 Women's Department $ 450,000 (177,600) 272,400 (44,000) (78,600) (24,000) (7,000) $ 118,800 Children's Department $ 170,000 (98, 375) 71,625 (24,000) (29,400) (24,000) (7,000) $(12,775) Required a. Calculate the contribution to profit. 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 $35,000. Would this information affect the decision that you made in Requirement a? Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Required C Calculate the contribution to profit. Determine whether to eliminate the children's department. Contribution to profit (loss) Should the children's department be eliminated? Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Required C Calculate the net income for the company as a whole with the children's department. Net income (loss) Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Required C Confirm the conclusion you reached in Requirement a by preparing income statements for the company without the children's department. Men's Department Women's Department Company Total Sales Cost of goods sold Gross margin Department manager's salary Sales commissions Rent on store lease Store utilities Net income (loss) Complete this question by entering your answers in the tabs below. Required A Required B1 Required B2 Required 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 $35,000. Would this information affect the decision that you made in Requirement a? Will the decision made in Requirement a be affected