Homework Answers
Answer :
(a) Computation of contribution to profit
| Childern's Department | |
| Sales | $ 180000 |
| Less - Cost of goods sold | $ ( 100375 ) |
| Gross margin | $ 79625 |
| Less - Department manager's salary | $ (28000) |
| Less - Sales commision | $ ( 31400) |
| contribution to profit | $ 20225 |
| Should the childern's Department be Eliminated | No |
(b) - 1 Net Income of the company as a whole with Childern's Department
| Men's Department | $ 189800 |
| Women's Department | $ 141200 |
| Childern's Department | $ ( 18775) |
| Net Income ( Loss ) | $ 312225 |
(b) - 2 Net Income of the company Without Childern's Department
| Men's Department | Women's Department | Company Total | |
| Sales | $ 670000 | $ 490000 | $ 1160000 |
| Cost of goods sold | $ ( 269000) | $ ( 179200) | $ ( 448200) |
| Gross Margin | $ 401000 | $ 310800 | $ 711800 |
| Department manager salary | $ ( 59000) | $ ( 48000) | $ ( 107000) |
| Sales commissions | $ ( 113200) | $ ( 82600) | $ ( 195800) |
| Rent on store lease | $ (42000) | $ (42000) | $ ( 84000) |
| Store Utilities | $ (16500) | $ ( 16500) | $ (33000) |
| Net Income | $ 170300 | $ 121700 | $ 292000 |
Net Income without Childern's Department is Lower which confirms the conclusion arrived in part - a
(c) Yes, in this Scenario Childern's Department should be eliminated as the Increase in net income $ 39000 is higher than contribution to profit $ 20225.
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