### Fanning Boot Company Financial AnalysisFanning Boot Company sells men's, women's, and children's boots, each through separate departments with their own managers. Below is a summary and analysis of last year's financial information specific to each department.#### Last Year's Income Statement| | Men’s Department | Women’s Department | Children’s Department ||-----------------------------|------------------|--------------------|-----------------------|| **Sales** | $650,000 | $478,000 | $180,000 || **Cost of Goods Sold** | (258,000) | (178,400) | (99,375) || **Gross Margin** | 392,000 | 299,600 | 80,625 || **Department Manager’s Salary** | (37,000) | (28,000) | (26,000) || **Sales Commissions** | (64,300) | (47,800) | (9,000) || **Rent on Store Lease** | (26,000) | (26,000) | (26,000) || **Store Utilities** | (9,000) | (9,000) | (9,000) || **Net Income (Loss)** | $178,800 | $188,800 | $(10,775) |### Required Analysesa. **Calculate the children's department's contribution to profit.** Determine whether to eliminate the children's department based on its contribution to the overall profit.b. **Confirm your conclusion:** Prepare proforma income statements for the company with and without the children's department to affirm your decision.c. **Evaluate the incremental impact:** Consider if expanding adult boot spaces, thus eliminating the children's department, will potentially increase net earnings by $37,000. Determine if this impacts your decision made in requirement (a).### Action Steps- **Contribution to Profit (Loss):** - Calculate the contribution margin and remaining fixed costs to assess profitability impacts.- **Elimination Decision:** - Analyze both qualitative and quantitative factors to decide whether the children's department should be retained or removed.This exercise provides a comprehensive scenario for managerial decision-making concerning departmental profitability and resource allocation. It encourages critical thinking in the context of financial management and operational strategy.

Sales $ 1,80,000 Cost of Goods Sold $ 99,375 Department Manager Salary $…

382,000 (57,000) (111,200) (26,000) (9,000) $ 178,800 291,600 (46,000) (80,600) (26,000) (9,000) $ 130,000 80,625 (26,000) (30,400) (26,eee) (9,000) $ (10,775) contribution to profit. Determine whether to eliminate the children's d Requirement a by preparing income statements for the company as would increase space available to display men's and women's boots. ult boots would increase the store's net earnings by $37,000. Would nt a?

382,000 (57,000) (111,200) (26,000) (9,000) $ 178,800 291,600 (46,000) (80,600) (26,000) (9,000) $ 130,000 80,625 (26,000) (30,400) (26,eee) (9,000) $ (10,775) contribution to profit. Determine whether to eliminate the children's d Requirement a by preparing income statements for the company as would increase space available to display men's and women's boots. ult boots would increase the store's net earnings by $37,000. Would nt a?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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