ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Dept. 100 Dept. 200 Combined Sales Cost of goods sold Gross profit Operating expenses $436,000 290,000 $726,000 174,000 o469,000 83,000 262,000 207,000 257,000 Direct expenses Advertising Store supplies used Depreciation-Store equipment Total direct expenses 17,000 4,000 5,000 26,000 12,000 3,800 3,300 19,100 29,000 7,800 8,300 45,100 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses Total allocated expenses 65,000 9,440 9,900 18,720 2,000 2,400 107,468 133,460 $ 40,540 104,000 14,160 18,000 31,200 3,100 4,000 174,460 219,560 (3,10 37,440 39,000 4,720 8,100 12,480 1,100 1,600 67,000 86,100 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 sales clerks who each b. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged to earn $500 per week, or $26,000 per year for each salesclerk 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 25% of the miscellaneous office expenses presently allocated to it