2. Prepare a forecasted annual income statement for the company reflecting the elimination of Department 200 assuming that it will not affect Department 100s sales and gross profit. The statement should reflect the reassignment of the office worker to one-half time as a salesclerk.
Required Informatlon The towoing wormation appltes to the questions aisplayed below Elegant Decor Company's management is trying to decide whether to ellminate Department 200, wnich has produced osses or low profts for several years. The company's 2017 departmental Income statements shows the following. ELEGANT DECOR COMPANY Departnental Incone Statenents For Year Ended Decenber 31, 2817 Dept. 1ee Dept. 28e Combined $447,088 $286,880 $733,888 211, 476,e Cost of goads sold Gross profit Operating expenses 265,888 182,68 75,8e0 257,eee Direct expenses Advertising Store supplies used Depreciation-Store e Total direct expenses 16,588 12,588 S,480 29,ee9 11,480 6,888 27,368 65,668 21,18e Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscel1aneous office Total allocated expenses 39,688 4,748 7,480 18,488 1,288 184,809 14,158 17,189 26,8e9 3,380 9,418 15,688 2,188 expenses 441 217,558 131,710 584 169159 s 58,298 (18,848) 39,458 -194.41264.74ge Total expenses Net income (loss) In analyzing whether to ellminate Department 200, management conslders the following: a. The company has one omce worker wno earns $500 per week, or $26,000 per year, and four sales clerks wno each b. The full salaries or two salescierks are charged to Department 100. The full salary of one salesclerk Is charged to eam $500 per week, or $26,000 per year for each salesclerk. Department 200. The salary of the fourth clerk, who works half-time In botn departments, is dlvided eventy between the two departments. C. Ellminating Department 200 would avold the sales salarles and the omice salary currenty allocated to t. However, management prefers anotner plan. Two salesclerks have Indilcated that they wil be qultting soon. Management belleves that ther work can be done by the other two clerks it the one onice worker works In sales half-time Ellminating Department 200 will allow this shift of duties. If thls change Is Implemented, half the omce worker's salary would be reported as sales salaries and hair would be reported as oice salary d. The store bu ding is rented under a long-term lease that cannot be changed. Therefore, Department 100 will use the space and equipment currenty used by Department 200. e. Closing Department 20NE eliminate its expenses for advertising, bad debts, and store supples; 74% of the insurance expense allocated tot to cover its merchandise inventory, and 19% of the miscelaneous omce expenses presently allocated to It. 2. Prepare a forecasted annual Income statement for the company renecting the ellmination of Department 200 assuming that It wl not affect Department 100's sales and gross pront. The statement should refnect the reassignment of the oice worker to one-haif time as a salesclerk Foreoacted Annual Inoome statement Under Plan to Ellminate Department 200 S 447,000 st ogoods sold proft trom sales Store supplies Depreclat on of store equipment Rent expense Bad debis Office salary Total operating expenses 27,300 S 154,7Oo
