Required information [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 2017 departmental income statements show the following ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses Dept. 100 Dept. 200 Combined $461,000 $298,000 $759,000 269,000 214,000 483,000 84,000 276,000 192,000 Direct expenses Advertising Store supplies used Depreciation-Store equipment Total direct expenses 15,000 6,000 4,400 25,400 10,500 5,500 3,300 19,300 25,500 11,500 7,700 44,700 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses Total allocated expenses 39,000 104,000 14,240 17,000 36,400 3,400 4,400 69,030 179,440 88,330 224,140 $ 56,190 (4,330) 51,860 65,000 9,470 9,500 21,840 2,100 2,500 110,410 135,810 4,770 7,500 14,560 1,300 1,900 Total expenses Net income (loss) In analyzing whether to eliminate Department 200, management considers the following a. The company has one office worker who earns $700 per week, or $36,400 per year, and four salesclerks who each earn $500 per week, or $26,000 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; 68% of the insurance expense allocated to it to cover its merchandise inventory; and 21% of the miscellaneous office expenses presently allocated to it. Analysis Component 3. Reconcile the company's combined net income with the forecasted net income assuming that Department 200 is eliminated (list both items and amounts) ELEGANT DECOR COMPANY Reconciliation of Combined Income with Forecasted Income Combined net income Forecasted net income Required information [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 2017 departmental income statements show the following ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses Dept. 100 Dept. 200 Combined $461,000 $298,000 $759,000 269,000 214,000 483,000 84,000 276,000 192,000 Direct expenses Advertising Store supplies used Depreciation-Store equipment Total direct expenses 15,000 6,000 4,400 25,400 10,500 5,500 3,300 19,300 25,500 11,500 7,700 44,700 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses Total allocated expenses 39,000 104,000 14,240 17,000 36,400 3,400 4,400 69,030 179,440 88,330 224,140 $ 56,190 (4,330) 51,860 65,000 9,470 9,500 21,840 2,100 2,500 110,410 135,810 4,770 7,500 14,560 1,300 1,900 Total expenses Net income (loss) In analyzing whether to eliminate Department 200, management considers the following a. The company has one office worker who earns $700 per week, or $36,400 per year, and four salesclerks who each earn $500 per week, or $26,000 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; 68% of the insurance expense allocated to it to cover its merchandise inventory; and 21% of the miscellaneous office expenses presently allocated to it. Analysis Component 3. Reconcile the company's combined net income with the forecasted net income assuming that Department 200 is eliminated (list both items and amounts) ELEGANT DECOR COMPANY Reconciliation of Combined Income with Forecasted Income Combined net income Forecasted net income