Elegant Decor Companys management is trying to decide whether to eliminate Department 200, which has produced losses or low profits for several years. The companys departmental income statements show the following.

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

1. The company has one office worker who earns $500 per week, or $26,000 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; 65% of the insurance expense allocated to it to cover its merchandise inventory; and 17% 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.

Dept. 200 $287,000 212,000 75,000 Combined $734,000 473,000 261,000 ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019 Dept. 100 Sales $447,000 Cost of goods sold 261,000 Gross profit 186,000 Operating expenses Direct expenses Advertising 16,000 Store supplies used 5,000 Depreciation Store equipment 5,000 Total direct expenses 26,000 Allocated expenses Sales salaries 65,000 Rent expense 9,430 Bad debts expense 9,500 Office salary 15,600 Insurance expense 2,300 Miscellaneous office expenses 2,100 Total allocated expenses 103,930 Total expenses 129,930 Net income (loss) $ 56,070 12,500 4,600 3,900 21,000 28,500 9,600 8,900 47,000 39,000 4,710 7,500 10,400 1,500 1,300 64,410 85,410 $(10,410) 104,000 14,140 17,000 26,000 3,800 3,400 168, 340 215,340 $ 45,660 ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Eliminated Continuing Expenses Expenses Expenses Cost of goods sold $ 473,000 $ 212,000f $ 261,000| Direct expenses Advertising 28,500 12,500 16,000 Store supplies used 9,600 4,600 5,000 DepreciationStore equipment 8,900 8,900 Allocated expenses Sales salaries 104,000 39,000 65,000 Rent expense 14,140 0 14,140 Bad debts expense 17,000 7,500 9,500 Office salary 26,000 13,000 13,000 Insurance expense 3,800 Miscellaneous office expenses 3,400 Total expenses $ 688,340 $ 288,600 $ 392,540 |