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:

	Mens Department				Womens Department				Childrens Department
Sales	$	700,000			$	500,000			$	230,000
Cost of goods sold		(275,500	)			(184,400	)			(106,875	)
Gross margin		424,500				315,600				123,125
Department managers salary		(72,000	)			(61,000	)			(41,000	)
Sales commissions		(126,200	)			(95,600	)			(37,900	)
Rent on store lease		(41,000	)			(41,000	)			(41,000	)
Store utilities		(24,000	)			(24,000	)			(24,000	)
Net income (loss)	$	161,300			$	94,000			$	(20,775	)

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 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 $52,000. Would this information affect the decision that you made in Requirement a?

Contribution to profit (loss) Should the children's department be eliminated