Chp 23 part 4

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 departmental Income statements show the following. ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019 Dept. 180 Dept. 289 Combined Sales $448, 906 $ 281, 806 $729,906 Cost of goods sold 269, 206 208, 060 477,806 Gross profit 179,000 73,060 252,006 Operating expenses Direct expenses Advertising 15,090 11,806 26, 906 Store supplies used 4,090 3,500 7,506 Depreciation-Store equipment 5,090 3,906 8,906 Total direct expenses 24,900 18,480 42,406 Allocated expenses Sales salaries 65,800 39, 200 104, 090 Rent expense 9,486 4,786 14, 266 Bad debts expense 9,790 7,709 17,400 Office salary 18, 726 12,480 31, 206 Insurance expense Miscellaneous office expenses 2,300 1, 106 3,060 1,790 4,800 Total allocated expenses 107, 106 66, 760 173, 860 Total expenses 131, 106 85, 160 216, 260 Net income (loss) $ 47,906 $ (12,160) $ 35,740 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 salesclerks who each eams $500 per week, or $26.000 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; 69% of the Insurance expense allocated to It to cover Its merchandise Inventory: and 19% 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