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 workers 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; 65% of the insurance expense allocated to it to cover its merchandise inventory; and 22% of the miscellaneous office expenses presently allocated to it.

Problem 23-6A Part 2

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.

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 ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Dept. 100 Dept. 200 Combined $446,000 $284,000 $730,000 177,000 0482,000 269,000 248,000 Sales Cost of goods sold Gross profit 71,000 Operating expenses Direct expenses Advertising Store Depreciation-Store equipment Total direct expenses 16,500 5,000 4,400 25,900 13,000 4,700 2,700 20,400 29,500 9,700 7,100 46,300 supplies used Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses Total allocated expense 78,000 9,430 9,400 18,720 2,300 2,300 120,150 146,050 $30,950 46,800 4,760 7,400 12,480 1,500 1,600 74,540 94,940 $(23,940) 124,800 14,190 16,800 31,200 3,800 3,900 194,690 240,990 7,010 Total expenses Net income (loss) In analyzing whether to eliminate Department 200, management considers the following a. The company has one office worker who earns $600 per week, or $31,200 per year, and four b. The full salaries of two salesclerks are charged to Department 100. The full salary of one sales clerks who each earn $600 per week, or $31,200 per year for each salesclerk. 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. ELEGANT DECOR COMPANY Forecasted Annual Income Statement Under Plan to Eliminate Department 200 Total operating expenses