CASE STUDY 1 RETAIL METHOD OF INVENTORY Two years ago, Ms. Carol, the misses' sportswear buyer, agreed with management hat a separate petite sportswear department should be created. Because of increas ing sales, she felt that petite sportswear had outgrown its status as a classification and deserved, in its own right, to become a separate department. Ms. Carol continued as buyer for the newly created department, and with her enthusiastic and skillful attention, the impressive sales increases continued for the first year. The second year, e category ain a separate department or be reincorporated into the misses' sports- department. To make an appropriate judgment, she requested the following data for analysis. The department had an opening inventory of $750,000 at retail that 570,000 at retail were priced with a 561% markup. The freight charges were $9,600. The merchandise returned to vendors amounted to $14,000 at cost and $30,000 at retail. Transfers from the misses' sportswear department were $3,500 at cost and $7,600 at retail. an agreed s sales were $720,000; customer returns and allowances were s increases were minute. Ms. Carol now questioned if th wear carried a 53% markup. During this period, the gross purchases of $ Transfers to the misses' sportswear depar cost of $3,700. The gros $30,000. The markdowns taken were 12%, and employee discounts were 196. were $8,000 at re As Ms. Carol determined the gross margin achieved by the petite sportswear depart ment, she weighed this against the 46.1% gross margin of the misses' department Should this "new" department continue as a separate entity? Why? Justify your deci etites versus misses sion with a mathematical comparison of the performance of the p sportswear departments