Franklin Boot Co. sells men’s, women’s, and children’s boots.For each type of boot sold, it operates a separate department thathas its own manager. The manager of the men’s department has asales staff of nine employees, the manager of the women’sdepartment has six employees, and the manager of the children’sdepartment has three employees. All departments are housed in asingle store. In recent years, the children’s department hasoperated at a net loss and is expected to continue to do so. Lastyear’s income statements follow: Men’s Department Women’sDepartment Children’s Department Sales $ 670,000 $ 490,000 $180,000 Cost of goods sold (269,000 ) (179,200 ) (100,375 ) Grossmargin 401,000 310,800 79,625 Department manager’s salary (59,000 )(48,000 ) (28,000 ) Sales commissions (113,200 ) (82,600 ) (31,400) Rent on store lease (28,000 ) (28,000 ) (28,000 ) Store utilities(11,000 ) (11,000 ) (11,000 ) Net income (loss) $ 189,800 $ 141,200$ (18,775 ) 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 thechildren's department. b-2. Confirm the conclusion you reached inRequirement a by preparing income statements for the company as awhole with and without the children’s department. c. Eliminatingthe children’s department would increase space available to displaymen’s and women’s boots. Suppose management estimates that a widerselection of adult boots would increase the store’s net earnings by$39,000. Would this information affect the decision that you madein Requirement a?
