Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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. Dept. 200 $288,000 210,000 78,000 Combined $726,000 475,000 251,000 ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Dept. 100 Sales $438,800 Cost of goods sold 265,000 Gross profit 173,000 Operating expenses Direct expenses Advertising 17,000 Store supplies used 5,500 Depreciation-store equipment 4,600 Total direct expenses 27,100 Allocated expenses Sales salaries 78,000 Rent expense 9,450 Bad debts expense 9,800 Office salary 15,600 Insurance expense 1,900 Miscellaneous office expenses 2,100 Total allocated expenses 116,850 Total expenses 143,950 Net income (loss) $ 29,050 13,000 4,900 3,100 21,000 30,000 10,400 7,700 48,100 46,800 4,790 7,500 10,400 1,000 1,400 71,890 92,890 $(14,890) 124,800 14,240 17,300 26,000 2,900 3,500 188,740 236,840 $ 14,160 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 $600 per week, or $31,200 per year for each salesclerk. b. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged to Department 200. The salary of the fourth clerk, who works half-time in both departments, is divided evenly between the two departments c. Eliminating Department 200 would avoid the sales salaries and the office salary currently allocated to it. However, management prefers another plan. Two salesclerks have indicated that they will be quitting soon. Management believes that their work can be done by the other two clerks if the one office worker works in sales half-time. Eliminating Department 200 will allow this shift of duties. If this change is implemented, half the office worker's salary would be reported as sales salaries and half would be reported as office salary. d. The store building is rented under a long-term lease that cannot be changed. Therefore, Department 100 will use the space and equipment currently used by Department 200. e. Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies, 70% of the insurance expense allocated to it to cover its merchandise inventory, and 23% of the miscellaneous office expenses presently allocated to it. Required: 1. Complete the following report showing total expenses, expenses that would be eliminated by closing Department 200 and the expenses that would continue. The statement should reflect the reassignment of the office worker to one-half time as salesclerk. ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Eliminated Continuing Expenses Expenses Expenses Direct expenses Allocated expenses Total expenses 0 0$ 0
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started