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 2017 departmental income statements shows the following.

ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017
	Dept. 100					Dept. 200					Combined
Sales		$	440,000				$	286,000				$	726,000
Cost of goods sold			269,000					214,000					483,000
Gross profit			171,000					72,000					243,000
Operating expenses
Direct expenses
Advertising			17,000					12,500					29,500
Store supplies used			4,000					3,400					7,400
DepreciationStore equipment			4,400					3,000					7,400
Total direct expenses			25,400					18,900					44,300
Allocated expenses
Sales salaries			52,000					31,200					83,200
Rent expense			9,440					4,730					14,170
Bad debts expense			9,800					7,600					17,400
Office salary			15,600					10,400					26,000
Insurance expense			1,900					1,200					3,100
Miscellaneous office expenses			2,700					2,000					4,700
Total allocated expenses			91,440					57,130					148,570
Total expenses			116,840					76,030					192,870
Net income (loss)		$	54,160				$	(4,030	)			$	50,130

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

The company has one office worker who earns $500 per week, or $26,000 per year, and four sales clerks who each earn $400 per week, or $20,800 per year for each salesclerk.

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.

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.

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.

Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies; 67% of the insurance expense allocated to it to cover its merchandise inventory; and 22% 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.

CALLA COMPANY COMPARATIVE INCOME STATEMENTS Additional Combined Normal Volume Volume Sales 5,547,600$ 934,400 6,482,000 Costs and expenses: Direct materials Direct labor Overhead 164,980 105,120 164,991 105,127 Selling expenses Total costs and expenses Operating income 18 1 $ 5,547,582 $ 664,300 $ 6,211,882 270,100 270,118 CALLA COMPANY COMPARATIVE INCOME STATEMENTS Additional Combined Normal Volume Volume Sales 5,547,600$ 934,400 6,482,000 Costs and expenses: Direct materials Direct labor Overhead 164,980 105,120 164,991 105,127 Selling expenses Total costs and expenses Operating income 18 1 $ 5,547,582 $ 664,300 $ 6,211,882 270,100 270,118