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 Dept. 100 Dept. 200 Combined Sales Cost of goods sold Gross profit Operating expenses $449,000 287,000 $736,000 184,000 0o475,000 77,000 265,000 210,000 261,000 Direct expenses Advertising Store supplies used Depreciation-Store equipment Total direct expenses 17,000 4,000 4,400 25,400 13,000 3,700 2,800 19,500 30,000 7,700 7,200 44,900 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses Total allocated expenses 83,200 14,250 16,800 31,200 2,100 4,300 151,850 196,750 $64,900 (650) 64,250 52,000 9,480 9,500 18,720 1,500 2,500 93,700 119,100 31,200 4,770 7,300 12,480 600 1,800 58,150 77,650 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 $600 per week, or $31,200 per year, and four sales clerks who each earn $400 per week, or $20,800 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; 73% of the insurance expense allocated to it to cover its merchandise inventory; and 24% of the miscellaneous office expenses presently allocated to it. 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 Direct expenses Advertising Store supplies used Depreciation-Store equipment Allocated expenses Sales salaries Rent expense Bad debts expense Office salary nsurance expense Miscellaneous office expenses Total expenses 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 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