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. Dept. 200 $290,000 207,000 83,000 Combined $ 726,000 469,000 257,000 ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019 Dept. 100 Sales $436,000 Cost of goods sold 262,000 Gross profit 174,000 Operating expenses Direct expenses Advertising, 17,000 Store supplies used 4,000 Depreciation-Store equipment 5,000 Total direct expenses 26,000 Allocated 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 107,460 Total expenses 133,460 Net income (loss) $ 40,540 12,000 3,800 3,300 19,100 29,000 7,800 8,300 45,100 expenses 39,000 4,720 8,100 104,000 14,160 18,000 12,480 31,200 1,100 1,600 67,000 86,100 $ (3,100) 3,100 4,000 174,460 219,560 $ 37,440 In analyzing whether to eliminate Department 200, management considers the following: a. The company has one office worker who earns $600 per week, or $31,200 per year, and four sales-clerks who each earns $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 Cost of goods sold $ 477,000 $ 214,000 $ 263,000 Direct expenses Advertising 30,000 13,500 16,500 Store supplies used 7,400 3,400 4,000 Depreciation Store equipment 6,700 0 6,700 Allocated expenses Sales salaries 83,200 28,600 54,600 Rent expense 14,150 0 14,150 Bad debts expense 17,600 7,900 9,700 Office salary 26,000 13,000 13,000 Insurance expense 3,800 975 2,825 Miscellaneous office expenses 3,600 336 3,264 Total expenses $ 669,450 $ 281,711 $ 387,739 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