Finch Boot Co. sells men’s, women’s, and children’s boots. Foreach type of boot sold, it operates a separate department that hasits own manager. The manager of the men’s department has a salesstaff of nine employees, the manager of the women’s department hassix employees, and the manager of the children’s department hasthree employees. All departments are housed in a single store. Inrecent years, the children’s department has operated at a net lossand is expected to continue to do so. Last year’s income statementsfollow:

	Men’s Department		Women’s Department		Children’s Department
Sales	$	660,000			$	480,000			$	170,000
Cost of goods sold		(268,500	)			(178,800	)			(99,875	)
Gross margin		391,500				301,200				70,125
Department manager’s salary		(58,000	)			(47,000	)			(27,000	)
Sales commissions		(112,200	)			(81,600	)			(30,900	)
Rent on store lease		(27,000	)			(27,000	)			(27,000	)
Store utilities		(10,000	)			(10,000	)			(10,000	)
Net income (loss)	$	184,300			$	135,600			$	(24,775	)

Required

1. a. Calculate the contribution margin. Determinewhether to eliminate the children’s department.

2. b-1. Calculate the net income for the companyas a whole with the children's department.

3. b-2. Confirm the conclusion you reached inRequirement a by preparing income statements for thecompany without the children’s department.

4. c. Eliminating the children’s department wouldincrease space available to display men’s and women’s boots.Suppose management estimates that a wider selection of adult bootswould increase the store’s net earnings by $38,000. Would thisinformation affect the decision that you made in Requirementa?