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 2015 departmental income statements shows the following.

ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2015
	Dept. 100					Dept. 200					Combined
Sales		$	441,000				$	284,000				$	725,000
Cost of goods sold			261,000					214,000					475,000
Gross profit			180,000					70,000					250,000
Operating expenses
Direct expenses
Advertising			16,000					12,000					28,000
Store supplies used			5,000					4,500					9,500
DepreciationStore equipment			4,400					3,100					7,500
Total direct expenses			25,400					19,600					45,000
Allocated expenses
Sales salaries			78,000					46,800					124,800
Rent expense			9,420					4,700					14,120
Bad debts expense			9,600					7,300					16,900
Office salary			18,720					12,480					31,200
Insurance expense			2,300					1,600					3,900
Miscellaneous office expenses			2,600					1,900					4,500
Total allocated expenses			120,640					74,780					195,420
Total expenses			146,040					94,380					240,420
Net income (loss)		$	33,960				$	(24,380	)			$	9,580

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 $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 workers 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; 70% 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 Expenses	Eliminated Expenses	Continuing Expenses
Direct expenses
Allocated expenses
Total expenses