Williams Company began operations in January 2013 with two operating (selling) departments and one service (office) department. Its departmental income statements follow.

WILLIAMS COMPANY Departmental Income Statements clock mirror combined

sales 160,000 115,000 275,000

cost of goods sold 78,400 71,300 149,700

gross profit 81,600 43,700 125,300

direct expenses

sales salaries 20,000 8,600 28,600

advertising 1,400 300 1700

store supplies used 550 800 1350

depreciation-equipment 1700 200 1900

total direct expenses 23650 9900 33550

allocated expenses

rent expense 7070 4520 11590

utilities expense 2600 1662 4262

share of office expense 10500 9500 20000

total allocated expense 20170 15682 35852

total expenses 43820 25582 69402

net income 37780 18118 55898

Williams plans to open a third department in January 2014 that will sell paintings. Management predicts that the new department will generate $56,000 in sales with a 55% gross profit margin and will require the following direct expenses: sales salaries, $8,500; advertising, $700; store supplies, $500; and equipment depreciation, $800. It will fit the new department into the current rented space by taking some square foot-age from the other two departments. When opened the new painting department will fill one-fifth of the space presently used by the clock department and one-fourth used by the mirror department. Management does not predict any increase in utilities costs, which are allocated to the departments in proportion to occupied space (or rent expense). The company allocates office department expenses to the operating departments in proportion to their sales. It expects the painting department to increase total office department expenses by $7,200. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 10%. No changes for those departments