#14
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Required information (The following information applies to the questions displayed below.) Elegant Decor Company's management is trying to decide whether to eliminate Department 200, which has produced losses or low profits for several years. The company's 2017 departmental income statements shows the following. Dept. 200 $283,000 208,000 75,000 Combined $ 730,000 476,000 254,000 ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Dept. 100 Sales $447,000 Cost of goods sold 268,000 Gross profit 179,000 Operating expenses Direct expenses Advertising 16,500 Store supplies used 4,500 Depreciation Store equipment 4,800 Total direct expenses 25,800 Allocated expenses Sales salaries 52,000 Rent expense 9,450 Bad debts expense 9,600 Office salary 21,840 Insurance expense 1,700 Miscellaneous office expenses 2,400 Total allocated expenses 96,990 Total expenses 122,790 Net income (losa) $ 56,210 12,000 3,900 3,200 19,100 28,500 8,400 8,000 44,900 31,200 4,740 7,500 14,560 800 1,700 60,500 79,600 $ (4,600) 83,200 14,190 17,100 36,400 2,500 4,100 157,490 202,390 $ 51,610 In analyzing whether to eliminate Department 200, management considers the following: a. The company has one office worker who earns $700 per week, or $36,400 per year, and four sales clerks who each earn $400 per week, or $20,800 per year for each salesclerk. b. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged to Department 200. The salary of the fourth clerk, who works half-time in both departments, is divided evenly between the two departments. c. Eliminating Department 200 would avoid the sales salaries and the office salary currently allocated to it. However, management prefers another plan. Two salesclerks have indicated that they will be quitting soon. Management believes that their work can be done by the other two clerks if the one office worker works in sales half-time. Eliminating Department 200 will allow this shift of duties. If this change is implemented, half the office worker's salary would be reported as sales salaries and half would be reported as office salary. d. The store building is rented under a long-term lease that cannot be changed. Therefore, Department 100 will use the space and equipment currently used by Department 200. e. Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies; 70% of the insurance expense allocated to it to cover its merchandise Inventory, and 22% of the miscellaneous office expenses presently allocated to it. Required: 1. Complete the following report showing total expenses, expenses that would be eliminated by closing Department 200 and the expenses that would continue. The statement should reflect the reassignment of the office worker to one-half time as salesclerk. ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Eliminated Continuing Expenses Expenses Expenses Direct expenses Allocated expenses Total expenses $ 0 $ 0 $ 0
