[The following information applies to the questions displayed below.]

Elegant Decor Companys management is trying to decide whether to eliminate Department 200, which has produced losses or low profits for several years. The companys 2015 departmental income statements shows the following.

ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2015
	Dept. 100					Dept. 200					Combined
Sales		$	446,000				$	282,000				$	728,000
Cost of goods sold			267,000					212,000					479,000
Gross profit			179,000					70,000					249,000
Operating expenses
Direct expenses
Advertising			15,000					11,500					26,500
Store supplies used			6,000					5,400					11,400
DepreciationStore equipment			5,000					3,300					8,300
Total direct expenses			26,000					20,200					46,200
Allocated expenses
Sales salaries			52,000					31,200					83,200
Rent expense			9,480					4,780					14,260
Bad debts expense			9,500					7,300					16,800
Office salary			18,720					12,480					31,200
Insurance expense			2,100					1,400					3,500
Miscellaneous office expenses			2,300					1,500					3,800
Total allocated expenses			94,100					58,660					152,760
Total expenses			120,100					78,860					198,960
Net income (loss)		$	58,900				$	(8,860	)			$	50,040

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 sales clerks who each earn $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 workers 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; 69% of the insurance expense allocated to it to cover its merchandise inventory; and 17% of the miscellaneous office expenses presently allocated to it.

5.

value: 7.00 points

Required information

Required:

1.

Complete the following report showing total expenses, expenses that would be eliminated by closing Department 200 and the expenses that would continue. The statement should reflect the reassignment of the office worker to one-half time as salesclerk.

ELEGANT DECOR COMPANY
Analysis of Expenses under Elimination of Department 200
	Total Expenses	Eliminated Expenses	Continuing Expenses
Cost of goods sold
Direct expenses
Advertising
Store supplies used
DepreciationStore equipment
Allocated expenses
Sales salaries
Rent expense
Bad debts expense
Office salary
Insurance expense
Miscellaneous office expenses
Total expenses	$0	$0	$0

6.

value: 7.00 points

Required information

2.

Prepare a forecasted annual income statement for the company reflecting the elimination of Department 200 assuming that it will not affect Department 100s 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
Total operating expenses	0
	$0

7.

value: 7.00 points

Required information

Analysis Component

3.

Reconcile the companys combined net income with the forecasted net income assuming that Department 200 is eliminated (list both items and amounts). (Amounts to be deducted should be indicated by a minus sign.)

ELEGANT DECOR COMPANY
Reconciliation of Combined Income with Forecasted Income
Combined net income
Forecasted net income