Esme Company's management is trying to decide whether to climinate Department Z, which has pro- duced low profits or losses for several years. The company's 2017 departmental income statements show the following. Problem 25-6B Analysis of possible olimination of a department. A1 ESME COMPANY Departmental Income Statements For Year Ended December 31, 2017 Dept. A Dept. Z Combined Sales $700,000 $175.000 S875,000 Cost of goods sold 451,300 125,100 586,400 Gross profit 238.700 49.900 288.600 Operating expenses Direct expenses Advertising 27.000 3,000 30,000 Store supplies used 5,600 1,400 7,000 Depreciation-Store equipment 14.000 7,000 21,000 Total direct expenses 46,600 11,400 58.000 Allocated expenses Sales salaries. 70,200 23,400 93,600 Rest expense.. 22,080 5,520 27,600 Bad debts expense 21,000 4,000 25,000 Office salary. 20.800 5,200 26,000 Insurance expense Miscellaneous office expenses... Total allocated expenses. 4,200 1,400 5,600 1,700 2.500 4,200 139,980 42,020 182.000 Total expenses 186,580 53,420 240,000 Net income Doss) . $ 52,120 $ (3,520) $ 48.600 In analyzing whether to eliminate Department Z, management considers the following items: a. The company has one office worker who earns $500 per week or $26,000 per year and four salesclerks who each earns $450 per week, or $23.400 per year for each salesclerk. charged to Department A. The full salary of one salesclerk is b. The full salaries of three salesclerks are charged to Department Z c. Eliminating Department Z 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 two remaining clerks if the one office worker works in sales half-time. Eliminating Department Z will allow this shift of duties. If this change is implemented, half the office worker's saiary 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 A will use the space and equipment currently used by Department Z Closing Department Z will eliminate its expenses for advertising, bad debts, and store supplies; 65% of the insurance expense allocated to it to cover its merchandise inventory; and 30 % of the miscella neous office expenses presently allocated to it. e