Stuck on accounting question -
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 Dept. 200 $287,000 213,000 74,000 Combined $728,000 479,000 249,000 ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019 Dept. 100 Sales $441,000 Cost of goods sold 266,000 Gross profit 175,000 Operating expenses Direct expenses Advertising 17,000 Store supplies used 5,500 Depreciation-Store equipment 4,600 Total direct expenses 27,100 Allocated expenses Sales salaries 52,000 Rent expense 9,480 Bad debts expense 9,500 Office salary 18,720 Insurance expense 1,900 Miscellaneous office expenses 2,800 Total allocated expenses 94,400 Total expenses 121,500 Net income (loss) $ 53,500 13,000 5,100 3,000 21,100 30,000 10,600 7,600 48,200 31,200 4,790 7,700 12,480 1,200 2,000 59,370 80,470 $ (6,470) 83,200 14,270 17,200 31,200 3,100 4,800 153, 770 201,970 $ 47,030 In analyzing whether to eliminate Department 200, management considers the following: a. The company has one office worker who earns $600 per week, or $31,200 per year, and four salesclerks who each earns $400 per week, or $20,800 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; 65% of the insurance expense allocated to it to cover its merchandise inventory; and 19% of the miscellaneous office expenses presently allocated to it. 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 salesclerk. ELEGANT DECOR COMPANY Forecasted Annual Income Statement Under Plan to Eliminate Department 200 0 Operating expenses 0 Operating expenses Total operating expenses 0 $ 0
