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 ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses Dept. 100 Dept. 200 Combined $442,000 285,000 727,000 479,000 248,000 268,000 174,000 211,000 74,000 Direct expenses Advertising Store supplies used Depreciation-Store equipment Total direct expenses 15,000 5,500 4,800 25,300 11,500 5,200 3,700 20,400 26,500 10,700 8,500 45,700 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses Total allocated expenses 104,000 14,150 16,900 36,400 2,900 3,300 177,650 223,350 $ 38,940 (14,290) 24,650 65,000 9,420 9,600 21,840 1,900 2,000 109,760 135,060 39,000 4,730 7,300 14,560 1,000 1,300 67,890 88,290 Total expenses Net income (loss) 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 sales clerks b. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged who each earn $500 per week, or $26,000 per year for each salesclerk. 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; 73% of the insurance expense allocated to it to cover its merchandise inventory, and 22% of the miscellaneous office expenses presently allocated to it