EP (Extra Credit) Saved 513 book Required information Problem 23.6A Analyzing possible elimination of a department LO P4 [The following information applies to the questions displayed below) Elegant Decor Company's management is trying to decide whether to eliminate Department 200, which has produced losses or low profits for several years. The company's departmental income statements show the following ELEGANT DECOR COMPANY Departmental Income Statemente Tor Year Ended December 31, 2019 Dept. 100 Dept. 200 Combined Sales $441,000 $286,000 $727,000 Coat of goods sold 262.000 210,000 472,000 Gross profit 179,000 76,000 255,000 Operating expenses Direct expenses Advertising 27,000 13,500 30,500 Store supplies used 6,000 5,600 11.600 Depreciation-store equipment 4.600 3.000 7.600 total direct expenses 27,600 22,100 49,700 Allocated expenses Sales salaries 78,000 46,800 124,800 Rent expenso 9,420 4,720 Bad debts expense 14,140 9,400 7.300 ottice salary 16,700 18,720 12,480 31,200 Insurance expense 1,500 700 Miscellaneous of Lee expenses 2,200 2.300 1,500 Total allocated expenses 3,800 110340 2300 292,840 145.940 95,600 242.540 Net Income loon) $32.060 (19.600) $ 12,460 In analyzing whether to eliminate Department 200, management considers the following: rota. Located expenses Total expenses Net income (loan) 1,340 146,940 $ 32,060 1,200 95,600 $(19,600) IYA, 242,540 $ 12,460 13 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 salesclerks who each earns $600 per week, or $31,200 per year for each salesclerk. b. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged to Department 200. The salary of the fourth clerk, who works half-time in both departments, is divided evenly between the two departments. c. Eliminating Department 200 would avoid the sales salaries and the office salary currently allocated to it. However, management prefers another plan. Two salesclerks have indicated that they will be quitting soon. Management believes that their work can be done by the other two clerks if the one office worker works in sales half-time. Eliminating Department 200 will allow this shift of duties. If this change is implemented, half the office worker's salary would be reported as sales salaries and half would be reported as office salary. d. The store building is rented under a long-term lease that cannot be changed. Therefore, Department 100 will use the space and equipment currently used by Department 200. e. Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies: 70% of the insurance expense allocated to it to cover its merchandise Inventory, and 24% of the miscellaneous office expenses presently allocated to it Problem 23-6A Part 1 6 Problem 23-6A Part 1 Part 1 of 3 Required: 1. Complete the following report showing total expenses, expenses that would be eliminated by closing Department 200 and the expenses that would continue. The statement should reflect the reassignment of the office worker to one-half time as salesclerk 7 points ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Eliminated Continuing Expenses Expenses Expenses Cost of goods sold Directen Advertising Store supplies used Depreciation Store equipment Allocated expenses Ses salaries Rentgens Badets xp Ofices Miscellaneous Mice expenses 3 0$ 05 0