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Rundle 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 $ 200,000 Cost of goods sold (271,500 ) (181,200 ) (102,875 ) Gross margin 428,500 318,800 97,125 Department managers salary (64,000 ) (53,000 ) (33,000 ) Sales commissions (118,200 ) (87,600 ) (33,900 ) Rent on store lease (33,000 ) (33,000 ) (33,000 ) Store utilities (16,000 ) (16,000 ) (16,000 ) Net income (loss) $ 197,300 $ 129,200 $ (18,775 ) 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 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 $44,000. Would this information affect the decision that you made in Requirement a?

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