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Williams plans to open a third department in January 2020 that will sell paintings. Management predicts that the new department will generate $60,000 in sales with a 65% gross profit margin and will require the following direct expenses: sales salaries, $8,500; advertising, $1,200; store supplies, $900; and equipment depreciation, $400. It will fit the new department into the current rented space by taking some square footage from the other two departments. When opened, the new Painting department will fill one-fifth of the space presently used by the Clock department and one-fourth used by the Mirror department. Management does not predict any increase in utilities costs, which are allocated to the departments in proportion to occupied space (or rent expense). The company allocates office department expenses to the operating departments in proportion to their sales. It expects the Painting department to increase total office department expenses by $7,600. Since the Painting department will bring new customers into the store, management expects sales in both the Clock and Mirror departments to increase by 11%. No changes for those departments gross profit percents or their direct expenses are expected except for store supplies used, which will increase in proportion to sales.

Williams Company began operations in January 2019 with two operating (selling) departments and one service office) department. Its departmental income statements follow. WILLIAMS COMPANY Departmental Income Statements For Year Ended December 31, 2019 Clock Mirror Combined Sales $ 170,000 $105,000 $275,000 Cost of goods sold 83,300 65,100 148,400 Gross profit 86,700 39,900 126,600 Direct expenses Sales salaries 21,500 8,500 30,000 Advertising 1,600 700 2,300 Store supplies used 750 700 1,450 Depreciation-Equipment 1,900 300 2,200 Total direct expenses 25,750 10,200 35,950 Allocated expenses Rent expense 7,060 3,960 11,020 Utilities expense 2,800 2,300 5,100 Share of office department expenses 12,500 8,500 21,000 Total allocated expenses 22,360 14,760 37,120 Total expenses 48, 110 24,960 73,070 Net income $ 38,590 $ 14,940 $ 53,530 For Year Ended December 31, 2020 Clock Mirror $ 188,700 $ 116,550 7,161 X 188,700 109,389 Combined $ 365,250 Paintings $ 60,000 21,000 39,000 365,250 Sales Cost of goods sold Gross profit Direct expenses Sales salaries Advertising Store supplies used Depreciation of equipment Total direct expenses Allocated expenses Rent expense Utilities expense Share of office dept. expenses Total allocated expenses Total expenses 21,500 1,600 833 1,900 25,833 8,500 700 777 300 10,277 8,500 1,200 900 400 11,000 38,500 3,500 2,510 2,600 47,110 5,648 2,970 2,402 11,020 5,100 28,600 44,720 5,648 31,481 2,970 13,247 2,402 13,402 91,830