Benson Boot Co. sells men\'s, women\'s, and children\'s boots. For each type of

Question

Benson 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 follovw Sales Cost of goods sold $ 630,000 $ 450,000 $170,000 (98,375 71,625 (24,000) (29, 400) (24,000) 7,000 (177,600)-- 363,000 (55,000) (109,200) (24,000) 7,000 S 167,800 272,400 (44,000) (78, 600) (24,000) (7.0001 nt manager's salary Rent on store lease Store utilities S 118,800 $(12,775) a. Calculate the contribution margin. Determine whether to eliminate the children's department Calculate the net income for the company as a whole with the children's department and without the children's department management estimates that a wider selection of adult boots would increase the store's net earnings by $35,000 Would b-2. Confirm the conclusion you reached in Requirement a by preparing income statements for the company as a whole with c. Eliminating the children's department would increase space available to display men's and women's boots. Suppose this information affect the decision that you made in Requirement a? Complete this question by entering your answers in the tabs below Prev 3013 ill Next

Explanation / Answer

Requirement a Calculation of contribution margin Department Men's Women's Children's Sales 630000 450000 170000 Less : Variable Costs Cost of goods sold 267000 177600 98375 Sales Commissions 109200 78600 29400 Total Variable costs 376200 256200 127775 Contribution Margin 253800 193800 42225 No, we should not eliminate the children's department, as it is contributing positively towards margin of the company. b Calculation of Net Income for the company as a whole with children's department =167800+118800-12775       = 273825 c Income statement with Children's Department Department Men's Women's Children's Company as whole Sales 630000 450000 170000 1250000 Less : Variable Costs Cost of goods sold 267000 177600 98375 542975 Sales Commissions 109200 78600 29400 217200 Total Variable costs 376200 256200 127775 760175 Contribution Margin 253800 193800 42225 489825 Less : Fixed costs Specific Fixed costs Department Manager's salary 55000 44000 24000 123000 Income before deducting specific fixed costs 198800 149800 18225 366825 Common fixed costs Rent on store lease 72000 Store Utilities 21000 Net Income 273825 c Income statement without children's department Department Men's Women's Company as whole Sales 630000 450000 1080000 Less : Variable Costs Cost of goods sold 267000 177600 444600 Sales Commissions 109200 78600 187800 Total Variable costs 376200 256200 632400 Contribution Margin 253800 193800 447600 Less : Fixed costs Specific Fixed costs Department Manager's salary 55000 44000 99000 Income before deducting specific fixed costs 198800 149800 348600 Common fixed costs Rent on store lease 72000 Store Utilities 21000 Net Income 255600 It can be confirmed that company would make lesser profit without children's department by comparing the above two net income d If we remove children's department for making space available to display adult boots and thus increasing the net earning of store by $35000 will definitely affect the decision we made in requirement a, as this would amount to total net Income of $290600 ($255600+$35000) which is higher than our present net income of $273825. And thus, we will choose this decision.

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