Required Information Problem 25-6A 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 Statements For Year Ended December 31, 2019 Dept. 180 Dept. 200 Combined Sales 3436,000 $200,000 3726,000 Cost of goods sold 262.000 207,888 450,000 Gross profit 174,000 83, 257,000 Operating expenses Direct expenses Advertising 17,000 12,080 20,000 Store supplies used 4,683 3,800 7,800 Depreciation Store equipment 5,000 3,300 8,390 Total direct expenses 10,1 45, Allocated expenses Sales salaries 65,000 39,000 104,086 Rent expense 9,440 4,720 14, 160 Bad debts expense 9,900 8,100 18,000 orfice salary 18, 720 12, 480 31, 209 Insurance expense Miscellaneous office expenses 1.100 3.100 2,400 1,600 4,000 Total allocated expenses 107, 67, 174,450 Total expenses 133, 85,188 20. Net income (loss) 40,540 (3,100) 37, 440 2.600 In analyzing whether to eliminate Department 200 management considers the following: a. The company has one office worker who earns $600 per week or $3L200 per year, and four sales-clerks who each earns $500 per week, or $20,000 per year for each salescleric b. The ful salaries of two salesclerks are charged to Department 100. The full salary of one salescieric 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 cleric 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 woricer's salary would be reported as sales salaries and half would be reported as office salary d. The store bullding 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 suppiles: 70% of the Insurance expense allocated to it to cover its merchandise Inventory, and 25% of the miscellaneous office expenses presently allocated to it Problem 25-6A Part 2 2. Prepare a forecasted annual Income statement for the company reflecting the elimination of Department 200 assuming that it will not affect Department 100's sales and gross profit. The statement should reflect the reassignment of the office worker to one-half time as a salescleric 2. Prepare a forecasted annual Income statement for the company reflecting the elimination of Department 20D assuming that it will not affect Department 100's sales and gross profit. The statement should reflect the reassignment of the office worker to one-half time as a salescleric. ol Answer is not complete. ELEGANT DECOR COMPANY Forecasted Annual Income Statement Under Plan to Eliminate Department 200 Sales 437.000 Cost of goods sold 265.000 172.000 Operating expenses Advertising 16.000 Store supplies used 5.000 Depreciation of store equipment 8.7000 Sales salaries 67.600 Rent expense 14.210 Bad debts expense 9.500 Once salary 15.600 Insurance exponse 2548 Miscellaneous Mice expenses 3,014 Total operating expenses 142 172 Net Income $29.828 OOOOOOO