Thornton 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:

Men's Dept Women's Dept Children's Dept

Sales $700,000 $500,000 $200,000 Cost of goods sold (273,500) (182,800) (104,875) Gross margin 426,500 317,200 95,125

Department manager's salary (68,000) (57,000) (37,000) Sales commissions (122,200) (91,600) (35,900)

Rent on store lease (37,000) (37,000) (37,000) Store utilities (20,000) (20,000) (20,000) Net income (loss) $179,300 $111,600 $(34,775)

1. a.Calculate the contribution margin. Determine whether to eliminate the children's 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 Requirementaby preparing income statements for the company without the children's department.
4. 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 $48,000. Would this information affect the decision that you made in Requirementa?

1. A. Contribution to profit (loss)

Should the childrens department be eliminated?

B1. Net income (loss)

B2.

Men's Dept Women's Dept Company total

Sales

Cost of good sold

Gross margin

Department managers salary

Sales Commissions

Rent on store lease

Store utilities

Net income (loss)

C. Will the decision made in Requirement a be affected?