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 2017 departmental income statements show the following.

ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017

Dept. 100

Dept. 200

Combined

Sales

$

441,000

$

289,000

$

730,000

Cost of goods sold

264,000

212,000

476,000

Gross profit

177,000

77,000

254,000

Operating expenses

Direct expenses

Advertising

16,000

12,500

28,500

Store supplies used

4,500

3,900

8,400

DepreciationStore equipment

4,200

3,000

7,200

Total direct expenses

24,700

19,400

44,100

Allocated expenses

Sales salaries

65,000

39,000

104,000

Rent expense

9,470

4,770

14,240

Bad debts expense

9,600

7,600

17,200

Office salary

18,720

12,480

31,200

Insurance expense

2,100

1,300

3,400

Miscellaneous office expenses

2,700

2,100

4,800

Total allocated expenses

107,590

67,250

174,840

Total expenses

132,290

86,650

218,940

Net income (loss)

$

44,710

$

(9,650

)

$

35,060

In analyzing whether to eliminate Department 200, management considers the following:

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.

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.

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.

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.

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 24% 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 a salesclerk.

ELEGANT DECOR COMPANY
Analysis of Expenses under Elimination of Department 200
	Total Expenses	Eliminated Expenses	Continuing Expenses
Direct expenses
Allocated expenses
Total expenses