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 departmental income statements show the following.

ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019
	Dept. 100					Dept. 200					Combined
Sales		$	439,000				$	284,000				$	723,000
Cost of goods sold			264,000					213,000					477,000
Gross profit			175,000					71,000					246,000
Operating expenses
Direct expenses
Advertising			15,500					12,000					27,500
Store supplies used			4,500					3,900					8,400
DepreciationStore equipment			4,600					3,200					7,800
Total direct expenses			24,600					19,100					43,700
Allocated expenses
Sales salaries			65,000					39,000					104,000
Rent expense			9,500					4,790					14,290
Bad debts expense			9,800					7,600					17,400
Office salary			18,720					12,480					31,200
Insurance expense			1,700					800					2,500
Miscellaneous office expenses			2,200					1,500					3,700
Total allocated expenses			106,920					66,170					173,090
Total expenses			131,520					85,270					216,790
Net income (loss)		$	43,480				$	(14,270	)			$	29,210

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 salesclerks who each earns $500 per week, or $26,000 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; 66% of the insurance expense allocated to it to cover its merchandise inventory; and 23% of the miscellaneous office expenses presently allocated to it.

Problem 10-6A Part 1

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.