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 $ 446,000 $ 285,000 $ 731,000 Cost of goods sold 261,000 208,000 469,000 Gross profit 185,000 77,000 262,000 Operating expenses Direct expenses Advertising 16,500 12,000 28,500 Store supplies used 4,500 4,200 8,700 DepreciationStore equipment 4,200 2,500 6,700 Total direct expenses 25,200 18,700 43,900 Allocated expenses Sales salaries 52,000 31,200 83,200 Rent expense 9,460 4,780 14,240 Bad debts expense 9,900 7,800 17,700 Office salary 18,720 12,480 31,200 Insurance expense 2,100 1,400 3,500 Miscellaneous office expenses 2,100 1,300 3,400 Total allocated expenses 94,280 58,960 153,240 Total expenses 119,480 77,660 197,140 Net income (loss) $ 65,520 $ (660 ) $ 64,860 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 salesclerks who each earns $400 per week, or $20,800 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; 73% of the insurance expense allocated to it to cover its merchandise inventory; and 16% of the miscellaneous office expenses presently allocated to it. 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.

Sales ELEGANT DECOR COMPANY Forecasted Annual Income Statement Under Plan to Eliminate Department 200 $ 446,000 Cost of goods sold 261,000 Gross profit from sales 185,000 Operating expenses Advertising 16,500 Store supplies used 4,500 Depreciation of store equipment 6,700 Sales salaries Rent expense 14,240 Bad debts expense 9,900 Office salary Insurance expense Miscellaneous office expenses Total operating expenses Net income 51,840 $ 133,160