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		$	444,000				$	289,000				$	733,000
Cost of goods sold			263,000					209,000					472,000
Gross profit			181,000					80,000					261,000
Operating expenses
Direct expenses
Advertising			15,000					11,000					26,000
Store supplies used			4,500					4,100					8,600
DepreciationStore equipment			4,200					2,600					6,800
Total direct expenses			23,700					17,700					41,400
Allocated expenses
Sales salaries			65,000					39,000					104,000
Rent expense			9,500					4,770					14,270
Bad debts expense			9,800					7,800					17,600
Office salary			18,720					12,480					31,200
Insurance expense			1,900					1,100					3,000
Miscellaneous office expenses			2,800					2,100					4,900
Total allocated expenses			107,720					67,250					174,970
Total expenses			131,420					84,950					216,370
Net income (loss)		$	49,580				$	(4,950	)			$	44,630

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

The company has one office worker who earns $600 per week, or $31,200 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; 74% of the insurance expense allocated to it to cover its merchandise inventory; and 21% of the miscellaneous office expenses presently allocated to it.

Analysis Component 3. Reconcile the companys combined net income with the forecasted net income assuming that Department 200 is eliminated (list both items and amounts). (Amounts to be deducted should be indicated by a minus sign.)

ELEGANT DECOR COMPANY
Reconciliation of Combined Income with Forecasted Income
Combined net income	$44,630
Less: Dept. 200's lost sales	??????
Add: Dept 200's eliminated expenses	285,155
Forecasted net income	$40,785