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 2013 departmental income statement shows the following 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 $500 per week, or $26,000 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 65 of the insurance expense allocated to it to cover its merchandise inventory and 19 of the miscellaneous office expenses presently allocated to it Required 1 Complete the three column report that lists items and amounts for (a) the companys total expenses (including cost of goods sold)in column 1, (b) the expenses that would be eliminated by closing Department 200in column 2, and (c) the expenses that will continuein column 3 The statement should reflect the reassignment of the office worker to one half time as salesclerk ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2013 Dept 100 263,000 174,000 Dept 200 Sales Cost of goods sold $437,000 301,159 215,000 Combined $ 738,159 478,000 260,159 Gross profit Operating expenses 86,159 Direct expenses Advertising Store supplies used Depreciation Store equipment 17,000 5,500 4,400 14,000 5,000 3,400 31,000 10,500 7,800 Total direct expenses 26,900 22,400 49,300 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses 65,000 9,420 10,100 15,600 2,300 2,700 39,000 4 790 7,900 10,400 1,400 2,100 04,000 14,210 18,000 26,000 3,700 4,800 170,710 220,010 $ 41,980 1,831 40149 Total allocated expenses 105,120 65,590 Total expenses 132,020 87,990 Net income (loss)

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 03, 2024

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

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 2013 departmental income statement shows the following. image text in transcribed

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

The company has one office worker who earns $500 per week, or $26,000 per year, and four sales clerks who each earn $500 per week, or $26,000 per year for each salesclerk.

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.

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.

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.

Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies; 65% of the insurance expense allocated to it to cover its merchandise inventory; and 19% of the miscellaneous office expenses presently allocated to it.

Required:

Complete the three-column report that lists items and amounts for (a) the companys total expenses (including cost of goods sold)in column 1, (b) the expenses that would be eliminated by closing Department 200in column 2, and (c) the expenses that will continuein column 3. The statement should reflect the reassignment of the office worker to one-half time as salesclerk.

image text in transcribed

ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2013 Dept. 100 263,000 174,000 Dept. 200 Sales Cost of goods sold $437,000 301,159 215,000 Combined $ 738,159 478,000 260,159 Gross profit Operating expenses 86,159 Direct expenses Advertising Store supplies used Depreciation-Store equipment 17,000 5,500 4,400 14,000 5,000 3,400 31,000 10,500 7,800 Total direct expenses 26,900 22,400 49,300 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses 65,000 9,420 10,100 15,600 2,300 2,700 39,000 4.790 7,900 10,400 1,400 2,100 04,000 14,210 18,000 26,000 3,700 4,800 170,710 220,010 $ 41,980 1,831 40149 Total allocated expenses 105,120 65,590 Total expenses 132,020 87,990 Net income (loss)