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 $289,000 210,000 79,000 Combined $737,000 475,000 262,000 ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019 Dept. 100 Sales $448,000 Cost of goods sold 265,000 Gross profit 183,000 Operating expenses Direct expenses Advertising 15,500 Store supplies used 5,000 DepreciationStore equipment 4,400 Total direct expenses 24,900 Allocated expenses Sales salaries 65,000 Rent expense 9,420 Bad debts expense 9,400 Office salary 21,840 Insurance expense 1,500 Miscellaneous office expenses 2,300 Total allocated expenses 109,460 Total expenses 134,360 Net income (loss) $ 48,640 11,000 4,500 3,200 18,700 26,500 9,500 7,600 43,600 39,000 4,700 7,500 14,560 700 1,700 68,160 86,860 $ (7,860) 104,000 14,120 16,900 36,400 2,200 4,000 177,620 221,220 $ 40,780 In analyzing whether to eliminate Department 200, management considers the following: --I----..-....- -.-I. In analyzing whether to eliminate Department 200, management considers the following: a. 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. 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; 75% 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. 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 Direct expenses Allocated expenses Total expenses
