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 2017 departmental income statements show the following. Dept. 200 $290.000 207,000 B3,000 Combined $726,000 469,000 257,000 12,000 3,800 ELEGANT DECOR COMPANY Departmental Income Statements Yor Year Ended December 31, 2017 Dept. 100 Sales $436,000 Cost of goods sold 262,000 Gross profit 174,000 Operating expenses Direct expenses Advertising 177000 Store supplies used 4,000 Depreciation-Store equipment 5,000 Total direct expenses 26,000 Allocated expenses Sales salaries 65,000 Rent expense 9.440 Bad debts expense 9.900 office salary 18.720 Insurance expense 2.000 Miscellaneous office expenses 2,400 Total allocated expenses 102,460 Total expenses 133,460 Net income (los) $ 40,540 29,000 7,800 8,300 45.100 19,100 39,000 4.720 8.200 12,480 1,100 1,600 62,000 86,100 $ (),100) 104,000 14.160 18.000 31,200 3,100 4,000 174, 460 219,560 $ 37,460 a. The company has one office worker who earns $600 per week, or $31,200 per year, and four sales clerks who each earn $500 per week, or $26,000 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: 70% of the insurance expense allocated to it to cover its merchandise inventory, and 25% 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 Total Eliminated Continuing Expenses Expenses Expenses 30,500 9.600 7.800 13,500 4,600 17,000 5,000 Direct expenses Advertising Store supplies used Depreciation Store equipment Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses 104,000 14,180 17,500 31.2001 2,700 3.600 $ 221,080 $ 36,400 67,600 14.180 7,600 9.900 15,600 15,600 890 2010 255 3.345 78,645 $ 134,635 Total 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 0 Operating expenses Total Operating expenses 0 $ 0 Analysis Component 3. Reconcile the company's combined net income with the forecasted net income assuming that Department 200 is eliminated (list both items and amounts). (Amounts to be deducted should be indicated by a minus sign.) ELEGANT DECOR COMPANY Reconciliation of Combined Income with Forecasted Income Combined net income Forecasted net income