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 departmental income statements show the following. ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019 Dept. 100 Dept. 200 Combined Sales $ 443,000 $ 287,000 $ 730,000 Cost of goods sold 262,000 211,000 473,000 Gross profit 181,000 76,000 257,000 Operating expenses Direct expenses Advertising 17,000 13,500 30,500 Store supplies used 4,500 4,200 8,700 DepreciationStore equipment 4,800 3,600 8,400 Total direct expenses 26,300 21,300 47,600 Allocated expenses Sales salaries 78,000 46,800 124,800 Rent expense 9,440 4,720 14,160 Bad debts expense 9,700 7,500 17,200 Office salary 21,840 14,560 36,400 Insurance expense 2,500 1,700 4,200 Miscellaneous office expenses 2,800 2,000 4,800 Total allocated expenses 124,280 77,280 201,560 Total expenses 150,580 98,580 249,160 Net income (loss) $ 30,420 $ (22,580 ) $ 7,840 In analyzing whether to eliminate Department 200, management considers the following: The company has one office worker who earns $700 per week, or $36,400 per year, and four salesclerks who each earns $600 per week, or $31,200 per year for each salesclerk. 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. 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. 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. 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 24% of the miscellaneous office expenses presently allocated to it.

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.

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.