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.

ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019
	Dept. 100					Dept. 200					Combined
Sales		$	449,000				$	283,000				$	732,000
Cost of goods sold			269,000					207,000					476,000
Gross profit			180,000					76,000					256,000
Operating expenses
Direct expenses
Advertising			17,500					13,500					31,000
Store supplies used			5,500					5,100					10,600
DepreciationStore equipment			4,800					3,600					8,400
Total direct expenses			27,800					22,200					50,000
Allocated expenses
Sales salaries			65,000					39,000					104,000
Rent expense			9,460					4,730					14,190
Bad debts expense			9,600					7,300					16,900
Office salary			21,840					14,560					36,400
Insurance expense			1,900					1,100					3,000
Miscellaneous office expenses			2,600					2,000					4,600
Total allocated expenses			110,400					68,690					179,090
Total expenses			138,200					90,890					229,090
Net income (loss)		$	41,800				$	(14,890	)			$	26,910

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; 73% of the insurance expense allocated to it to cover its merchandise inventory; and 21% 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.

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.

ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Eliminated Continuing Expenses Expenses Expenses Cost of goods sold $ 476,000 $ 207,000 $ 269,000 Direct expenses Advertising 31,000 13,500 17,500 Store supplies used 10,600 5,100 5,500 DepreciationStore equipment 8,400 0 8,400 Allocated expenses Sales salaries 104,000 Rent expense 14,190 0 14,190 Bad debts expense 16,900 7,300 9,600 Office salary 36,400 Insurance expense 3,000 Miscellaneous office expenses 4,600 Total expenses $ 705,090 $ 232,900 $ 324,190 ELEGANT DECOR COMPANY Forecasted Annual Income Statement Under Plan to Eliminate Department 200 0 Operating expenses Total operating expenses 0 $ 0