Question: Western Boot Co. sells men’s, women’
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:
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.
Transcribed Image Text:
Men's Women's Children's Department Department Department Sales $250,000 $300,000 $60,000) (35,000) Cost of goods sold (105,000) (125,000) 175,000 (30,000) (49,000) (10,500) (2,000) $ 83,500 Gross margin Department manager's salary 145,000 (26,000) (43,000) (10,500) (2,000) $ 63,500 25,000 (12,000) (9,000) (10,500) (2,000) $ (8,500) Sales commissions Rent on store lease Store utilities Net income (loss)
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