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. Sales Cost of goods sold Gross profit ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019 Dept. 100 $446,000 Dept. 200 $290,000 Combined $736,000 261,000 210,000 471,000 185,000 80,000 265,000 Operating expenses Direct expenses Advertising 15,500 12,500 28,000 Store supplies used 5,500 5,000 10,500 Depreciation-Store equipment 4,400 3,000 7,400 Total direct expenses 25,400 20,500 45,900 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses 52,000 31,200 83,200 9,490 4,770 14,260 9,800 7,900 17,700 15,600 10,400 26,000 2,300 1,500 3,800 2,700 2,100 4,800 Total allocated expenses Total expenses Net income (loss) 91,890 57,870 149,760 117,290 78,370 195,660 $ 67,710 $ 1,630 $ 66,080 In analyzing whether to eliminate Department 200, management considers the following: a. The company has one office worker who earns $500 per week, or $26,000 per year, and four salesclerks who each earns $400 per week, or $20,800 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; 67% of the insurance expense allocated to it to cover its merchandise inventory; and 16% 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 Direct expenses Allocated expenses Total expenses Total Expenses Eliminated Expenses Continuing Expenses 2. Prepare a forecasted annual income statement for the company reflecting the elimination of Department 200 assuming that it will not affect Department 100's sales and gross profit. The statement should reflect the reassignment of the office worker to one-half time as a salesclerk. ELEGANT DECOR COMPANY Forecasted Annual Income Statement Under Plan to Eliminate Department 200 Operating expenses Total operating expenses