ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019
	Dept. 100					Dept. 200					Combined
Sales		$	444,000				$	285,000				$	729,000
Cost of goods sold			264,000					209,000					473,000
Gross profit			180,000					76,000					256,000
Operating expenses
Direct expenses
Advertising			18,000					13,000					31,000
Store supplies used			4,500					4,100					8,600
DepreciationStore equipment			4,400					2,800					7,200
Total direct expenses			26,900					19,900					46,800
Allocated expenses
Sales salaries			65,000					39,000					104,000
Rent expense			9,410					4,780					14,190
Bad debts expense			9,900					7,800					17,700
Office salary			21,840					14,560					36,400
Insurance expense			1,700					800					2,500
Miscellaneous office expenses			2,500					1,900					4,400
Total allocated expenses			110,350					68,840					179,190
Total expenses			137,250					88,740					225,990
Net income (loss)		$	42,750				$	(12,740	)			$	30,010

In analyzing whether to eliminate Department 200, management considers the following:

1. The company has one office worker who earns $700 per week, or $36,400 per year, and four salesclerks who each earns $500 per week, or $26,000 per year for each salesclerk.
2. 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.
3. 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.
4. 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.
5. Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies; 75% of the insurance expense allocated to it to cover its merchandise inventory; and 23% of the miscellaneous office expenses presently allocated to it.

Problem 10-6A Part 1

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 Expenses	Eliminated Expenses	Continuing Expenses
Direct expenses
Allocated expenses
Total expenses	$0	$0	$0

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.