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				$	287,000				$	736,000
Cost of goods sold			264,000					213,000					477,000
Gross profit			185,000					74,000					259,000
Operating expenses
Direct expenses
Advertising			17,500					13,500					31,000
Store supplies used			4,000					3,600					7,600
DepreciationStore equipment			4,800					3,700					8,500
Total direct expenses			26,300					20,800					47,100
Allocated expenses
Sales salaries			52,000					31,200					83,200
Rent expense			9,460					4,740					14,200
Bad debts expense			9,800					8,000					17,800
Office salary			15,600					10,400					26,000
Insurance expense			1,700					900					2,600
Miscellaneous office expenses			2,800					2,200					5,000
Total allocated expenses			91,360					57,440					148,800
Total expenses			117,660					78,240					195,900
Net income (loss)		$	67,340				$	(4,240	)			$	63,100

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 $400 per week, or $20,800 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; 72% 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.

7,600 0 ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Eliminated Continuing Expenses Expenses Expenses Cost of goods sold $ 477,000 $ 213,000 $ 264,000 Direct expenses Advertising 31,000 13,500 17,500 Store supplies used 3,600 4,000 DepreciationStore equipment 8,500 8,500 Allocated expenses Sales salaries 83,200 33,830 X 54,630 X Rent expense 14,200 0 14,200 Bad debts expense 17,800 8,000 9,800 Office salary 26,000 13,000 13,000 Insurance expense 2,600 648 1,952 Miscellaneous office expenses 5,000 4,516 Total expenses $ 672,900 $ 286,062 $ 392,098 484 ELEGANT DECOR COMPANY Forecasted Annual Income Statement Under Plan to Eliminate Department 200 Sales $ 449,000 Cost of goods sold (264,000) Gross profit from sales 185,000 Operating expenses Advertising 17,500 Store supplies used 4,000 Depreciation of store equipment 8,500 Sales salaries Rent expense 14,200 Bad debts expense 9,800 Office salary 13,000 Insurance expense 1,952 Miscellaneous office expenses 4,516 Total operating expenses 73,468 Net income S 111,532