Western 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. *Before the paragraph it stated under check figures " a. Contribution to profit: $4,000"
Western 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. *Before the paragraph it stated under check figures " a. Contribution to profit: $4,000"
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Western 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.
*Before the paragraph it stated under check figures " a. Contribution to profit: $4,000"

Transcribed Image Text:CHECK FIGURE
a. Contribution to profit: $4,000
Western 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.
Men's Department Women's Department Children's Department
Sales
$250,000
$300,000
$ 60,000
Cost of goods sold
(105,000)
(125,000)
(35,000)
Gross margin
145,000
175,000
25,000
Department manager's salary
(26,000)
(30,000)
(12,000)
Sales commissions
(43,000)
(49,000)
(9,000)
Rent on store lease
(10,500)
(10,500)
(10,500)

Transcribed Image Text:men
Sales
$250,000
$300,000
$ 60,000
Cost of goods sold
(105,000)
(125,000)
(35,000)
Gross margin
145,000
175,000
25,000
Department manager's salary
(26,000)
(30,000)
(12,000)
Sales commissions
(43,000)
(49,000)
(9,000)
Rent on store lease
(10,500)
(10,500)
(10,500)
Store utilities
(2,000)
(2,000)
(2,000)
Net income (loss)
$ 63,500
$ 83,500
$ (8,500)
Required
a. Determine whether to eliminate the children's department.
b. Confirm the conclusion you reached in Requirement a by preparing income statements for the company as a whole
with and without the children's department.
c. 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 $10,000.
Would this information affect the decision that you made in Requirement a? Explain your answer.
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