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 2015 departmental income statements shows the following. ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2015 Dept. 100 Dept. 200 Combined Sales $ 438,000 $ 284,000 $ 722,000 Cost of goods sold 266,000 208,000 474,000 Gross profit 172,000 76,000 248,000 Operating expenses Direct expenses Advertising 16,000 13,000 29,000 Store supplies used 5,000 4,600 9,600 DepreciationStore equipment 4,600 3,000 7,600 Total direct expenses 25,600 20,600 46,200 Allocated expenses Sales salaries 78,000 46,800 124,800 Rent expense 9,470 4,770 14,240 Bad debts expense 9,500 7,500 17,000 Office salary 18,720 12,480 31,200 Insurance expense 2,300 1,500 3,800 Miscellaneous office expenses 2,600 1,900 4,500 Total allocated expenses 120,590 74,950 195,540 Total expenses 146,190 95,550 241,740 Net income (loss) $ 25,810 $ (19,550 ) $ 6,260

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

a. 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.

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 workers 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; 74% of the insurance expense allocated to it to cover its merchandise inventory; and 24% 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.