Williams Company began operations in January 2017 with two operating (selling) departments and one service (office) department. Its departmental income statements follow WILLIAMS COMPANY Departmental Income Statements For Year Ended December 31, 2017 Mirror Combined $ 130,e00 $55,000 $ 185,000 97,800 87,200 Clock Sales Cost of goods sold Gross profit Direct expenses 63,700 66,300 34, 100 20,900 Sales salaries Advertising Store supplies used Depreciation-Equipment Total direct expenses 20,800 1,280 900 1,500 23,600 500 400 300 8,200 7,00027,000 1,700 1,300 1,800 31,800 Allocated expenses Rent expense Utilities expense Share of office department expenses Total allocated expenses 7,020 2,600 10,500 20,120 43,720 3,780 1,400 4,500 9,680 17,880 10,800 4,000 15,000 29,800 61,600 Total expenses Net income $ 22,580 $ 3,020 $ 25,600 Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $50,000 in sales with a 55% gross profit margin and will require the following direct expenses: sales salaries, $8,000 advertising, $800; store supplies, $500; and equipment depreciation, $200. It will fit the new department into the current rented space by taking some square footage 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 $7,000. Since the painting department will bring new customers into the store management expects sales in both the clock and mirror departments to increase by 8%. No changes for those departments' gross profit percents or their direct expenses are expected except for store supplies used, which will increase in proportion to sales