Problem 9-3A Departmental income statements; forecasts LO P3

Williams Company began operations in January 2017 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, 2017
	Clock			Mirror			Combined
Sales	$	140,000		$	105,000		$	245,000
Cost of goods sold		68,600			65,100			133,700
Gross profit		71,400			39,900			111,300
Direct expenses
Sales salaries		22,000			7,100			29,100
Advertising		2,200			800			3,000
Store supplies used		850			700			1,550
DepreciationEquipment		2,400			400			2,800
Total direct expenses		27,450			9,000			36,450
Allocated expenses
Rent expense		7,040			3,720			10,760
Utilities expense		2,500			1,500			4,000
Share of office department expenses		13,000			8,000			21,000
Total allocated expenses		22,540			13,220			35,760
Total expenses		49,990			22,220			72,210
Net income	$	21,410		$	17,680		$	39,090

Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $51,000 in sales with a 95% gross profit margin and will require the following direct expenses: sales salaries, $8,500; advertising, $900; store supplies, $400; and equipment depreciation, $900. 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 $8,400. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 5%. 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. Required: Prepare departmental income statements that show the companys predicted results of operations for calendar-year 2018 for the three operating (selling) departments and their combined totals. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)

WILLIAMS COMPANY
Forecasted Departmental Income Statements
For Year Ended December 31, 2018
	Clock	Mirror	Paintings	Combined
Direct expenses
Total direct expenses
Allocated expenses
Total allocated expenses
Total expenses