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 2017 departmental income statements shows the following. Dept. 200 $ 289,000 212,000 77,000 Combined $728,000 472,000 256,000 ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Dept. 100 Sales $439,000 Cost of goods sold 260,000 Gross profit 179,000 Operating expenses Direct expenses Advertising 15,500 Store supplies used 4,000 Depreciation-Store equipment 4,800 Total direct expenses 24,300 Allocated expenses Sales salaries 78,000 Rent expense 9,490 Bad debts expense 9,900 Office salary 15,600 Insurance expense 2,100 Miscellaneous office expenses 2,400 Total allocated expenses 117,490 Total expenses 141,790 Net income (loss) $ 37,210 12,000 3,500 3,500 19,000 27,500 7,500 8,300 43,300 46,800 4,790 7,600 10,400 1,200 1,700 72,490 91,490 $(14,490) 124,800 14,280 17,500 26,000 3,300 4,100 189,980 233, 280 $ 22,720 In analyzing whether to eliminate Department 200, management considers the following: a. The company has one office worker who earns $500 per week, or $26,000 per year, and four sales clerks who each earn $600 per week, or $31,200 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; 74% of the insurance expense allocated to it to cover its merchandise inventory; and 20% 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 Direct expenses Allocated expenses Total expenses 2. Prepare a forecasted annual income statement for the company reflecting the elimination of Department 200 assuming that it will income statement for the company reflecting the elimination of Department 200 assuming that time 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 Analysis Component 3. Reconcile the company's combined net income with the forecasted net income assuming that Department 200 is eliminated (list both items and amounts). (Amounts to be deducted should be indicated by a minus sign.) ELEGANT DECOR COMPANY Reconciliation of Combined Income with Forecasted Income Combined net income Forecasted net income