Niklos Boot Co. sells men’s, women’s, and children’s boots. For each type of boo

Question

Niklos Boot Co. sells men’s, women’s, and children’s boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men’s department has a sales staff of nine employees, the manager of the women’s department has six employees, and the manager of the children’s department has three employees. All departments are housed in a single store. In recent years, the children’s department has operated at a net loss and is expected to continue to do so. Last year’s income statements follow.

Calculate the contribution to profit of the children's department. (Negative amount should be indicated by a minus sign.)

Calculate the net income for the company as the whole with the children's department. (Negative amount should be indicated by a minus sign.)

Prepare the income statement for the company as the whole without the children's department. (Sunk cost of Children’s Department should be allocated equally between the remaining departments.)

Eliminating the children’s department would increase space available to display men’s and women’s boots. Suppose management estimates that a wider selection of adult boots would increase the store’s net earnings by $46,000. Should the children's department be eliminated?

Niklos Boot Co. sells men’s, women’s, and children’s boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men’s department has a sales staff of nine employees, the manager of the women’s department has six employees, and the manager of the children’s department has three employees. All departments are housed in a single store. In recent years, the children’s department has operated at a net loss and is expected to continue to do so. Last year’s income statements follow.

Explanation / Answer

a 1) Children’s Department   Sales 200000   Cost of goods sold -103875   Gross margin 96,125   Department manager’s salary -35000   Sales commissions -34900 Contribution to Profit 26,225 a) 2) childern department should not be elimated as it contributes 26225 to Overall Profit b) i) Men’s Women’s Children’s Company Department Department Department Total   Sales 700000 500000 200000 1400000   Cost of goods sold -272,500 -182000 -103875 -558375   Gross margin 427,500 318,000 96,125 841,625   Department manager’s salary -66000 -55000 -35000 -156000   Sales commissions -120200 -89600 -34900 -244700   Rent on store lease -35000 -35000 -35000 -105000   Store utilities -18000 -18000 -18000 -54000   Net income (loss) 188,300 120,400 -26,775 281,925 b) ii) Men’s Women’s Company Department Department Total   Sales 700000 500000 1200000   Cost of goods sold -272,500 -182000 -454500   Gross margin 427,500 318,000 745,500   Department manager’s salary -66000 -55000 -121000   Sales commissions -120200 -89600 -209800   Rent on store lease -35000 -35000 -70000   Store utilities -18000 -18000 -36000   Net income (loss) 188,300 120,400 308,700 c) childern department contributes 26225 to Overall Profit . But the additional income of 46000 by allocating space to adult boot section. Childern counter should be eliminated (Yes)

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