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! 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 departmental income statements show the following. ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019 Dept. 100 Dept. 200 Combined Sales $445,000 $281,000 $726,000 Cost of goods sold 267,000 209,000 476,000 Gross profit 178,000 72,000 250,000 Operating expenses Direct expenses Advertising 16,000 12,000 28,000 Store supplies used 5,500 5,000 10,500 Depreciation-store equipment 4,200 2,500 6, 700 Total direct expenses 25,700 19,500 45,200 Allocated expenses Sales salaries 52,000 31,200 83,200 Rent expense 9,430 4,760 14,190 Bad debts expense 9,700 7,800 17,500 office salary 1B, 720 12,480 31,200 Insurance expense 1,700 1,000 2,700 Miscellaneous office expenses 2,000 1,400 3,400 Total allocated expenses 93,550 5B, 640 152,190 Total expenses 119,250 78,140 197, 390 Net Income (loss) $ 58,750 $ (6,140) $ 52,610 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: 68% of the insurance expense allocated to it to cover its merchandise inventory, and 23% 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. Continuing Expenses Answer is not complete. ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Eliminated Expenses 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 s 0 0 OO 0 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. Answer is not complete. ELEGANT DECOR COMPANY Forecasted Annual Income Statement Under Plan to Eliminate Department 200 Sales Cost of goods sold Gross profit from sales 0 Operating expenses Advertising Store supplies used Depreciation of store equipment Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses Total operating expenses 0 Net income IS 0