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 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		$	437,000				$	286,000				$	723,000
Cost of goods sold			260,000					213,000					473,000
Gross profit			177,000					73,000					250,000
Operating expenses
Direct expenses
Advertising			17,000					13,000					30,000
Store supplies used			5,000					4,600					9,600
DepreciationStore equipment			4,600					3,600					8,200
Total direct expenses			26,600					21,200					47,800
Allocated expenses
Sales salaries			52,000					31,200					83,200
Rent expense			9,480					4,800					14,280
Bad debts expense			9,900					7,700					17,600
Office salary			18,720					12,480					31,200
Insurance expense			1,900					1,100					3,000
Miscellaneous office expenses			2,400					1,600					4,000
Total allocated expenses			94,400					58,880					153,280
Total expenses			121,000					80,080					201,080
Net income (loss)		$	56,000				$	(7,080	)			$	48,920

In analyzing whether to eliminate Department 200, management considers the following:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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 17% of the miscellaneous office expenses presently allocated to it.

Problem 23-6A Part 2

2. Prepare a forecasted annual income statement for the company reflecting the elimination of Department 200 assuming that it will not affect Department 100s sales and gross profit. The statement should reflect the reassignment of the office worker to one-half time as a salesclerk.

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 0 Operating expenses Total operating expenses 0 $ 0