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		$	449,000				$	284,000				$	733,000
Cost of goods sold			270,000					212,000					482,000
Gross profit			179,000					72,000					251,000
Operating expenses
Direct expenses
Advertising			15,500					10,500					26,000
Store supplies used			5,500					5,100					10,600
DepreciationStore equipment			4,600					3,500					8,100
Total direct expenses			25,600					19,100					44,700
Allocated expenses
Sales salaries			78,000					46,800					124,800
Rent expense			9,470					4,720					14,190
Bad debts expense			9,500					7,300					16,800
Office salary			18,720					12,480					31,200
Insurance expense			2,500					1,800					4,300
Miscellaneous office expenses			2,600					1,800					4,400
Total allocated expenses			120,790					74,900					195,690
Total expenses			146,390					94,000					240,390
Net income (loss)		$	32,610				$	(22,000	)			$	10,610

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 $600 per week, or $31,200 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; 67% of the insurance expense allocated to it to cover its merchandise inventory; and 15% 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 Expenses	Eliminated Expenses	Continuing Expenses
Cost of goods sold	$482,000	$212,000	$270,000
Direct expenses
Advertising	26,000	10,500	15,500
Store supplies used	10,600	5,100	5,500
DepreciationStore equipment	8,100		8,100
Allocated expenses
Sales salaries	124,800
Rent expense	14,190		14,190
Bad debts expense	16,800	7,300	9,500
Office salary
Insurance expense	4,300
Miscellaneous office expenses	4,400
Total expenses	$691,190	$234,900	$322,790

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.

ELEGANT DECOR COMPANY
Forecasted Annual Income Statement
Under Plan to Eliminate Department 200
Sales	$449,000
Cost of goods sold	(270,000)
Gross profit from sales	179,000
Operating expenses
Advertising	15,500
Store supplies used
Depreciation of store equipment	8,100
Sales salaries
Rent expense	14,190
Bad debts expense	9,500
Office salary
Insurance expense
Miscellaneous office expenses
Total operating expenses	47,290
Net income	$131,710