Western 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:

Required

a. Calculate the contribution margin. Determine whether to eliminate the childrens 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 as a whole with and without the childrens department.

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 $10,000. Would this information affect the decision that you made in Requirement a?

ARE THESE CORRECT?

A.

B1.

B2

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

Men' s Women' s Children' s Department Department $ 250,000 (105,000) 145,000 (26,000) (43, 000) (10,500) (2,000) Department s 300,000 (125,000) 175,000 (30,000) (49,000) (10, 500) (2,000) S 60,000 Sales Cost of goods sold Gross margin Department manager's salary Sales commissions Rent on store lease Store utilities (35,000) 25,000 (12,000) (9,000) (10, 500) (2,000) $ (8,500) Net income (loss) S 63,500 S 83,500