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Western 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.
Western 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: 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 $ 700,000 (275,500) 424,500 (72,000) (126, 200) (41,000) (24,000) $ 161,300 Women's Department $ 500,000 (184,400) 315,600 (61,000) (95,600) (41,000) (24,000) $ 94,000 Children's Department $ 230,000 (106,875) 123, 125 (41,000) (37,900) (41,000) (24,000) $ (20,775) 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 $52,000. 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 margin. Determine whether to eliminate the children's department. (Negative amounts should be indicated by a minus sign.) Contribution to profit (loss) Should the children's department be eliminated? : No 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 Women's Department Department Company Total 0 0 0 Sales Cost of goods sold Gross margin Department manager's salary Sales commissions Rent on store lease Store utilities Net income (loss) $ 0 $ 0 $ 0
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