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" CHECK FIGUREa. Contribution to profit: $4,000Western Boot Co. sells men's, women's, and children's boots. For each type of boot sold, it operates a separatedepartment that has its own manager. The manager of the men's department has a sales staff of nine employees, themanager of the women's department has six employees, and the manager of the children's department has threeemployees. All departments are housed in a single store. In recent years, the children's department has operated at a netloss and is expected to continue to do so. Last year's income statements follow.Men's Department Women's Department Children's DepartmentSales$250,000$300,000$ 60,000Cost of goods sold(105,000)(125,000)(35,000)Gross margin145,000175,00025,000Department 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) menSales$250,000$300,000$ 60,000Cost of goods sold(105,000)(125,000)(35,000)Gross margin145,000175,00025,000Department 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)Requireda. 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 wholewith and without the children's department.c. Eliminating the children's department would increase space available to display men's and women's boots. Supposemanagement 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.

SOLUTION NET INCOME REFERS TO THE AMOUNT THAT AN INDIVIDUAL'S AND BUSINESS AFTER DEDUCTING COSTS…

Answered: Western Boot Co. sells men’s, women’s,…

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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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"

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)

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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