Warton Company began operations in January 2009 with two operating (selling) departments and one service (office) department.
Question:
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Warton plans to open a third department in January 2010 that will sell paintings. Management predicts that the new department will generate $50,000 in sales with a 45% gross profit margin and will require the following direct expenses: sales salaries, $8,500; advertising, $1,100; store supplies, $400; and equipment depreciation, $1,000. 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 $8,000. 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.
Required
Prepare departmental income statements that show the company€™s predicted results of operations for calendar year 2010 for the three operating (selling) departments and their combined totals. (Round percents to the nearest one-tenth and dollar amounts to the nearest wholedollar.)
Step by Step Answer:
Warton Company Forecasted Departmental Income Statements For Year Ended December 31 2010 Clock Mirror Paintings Combined Sales 183600 102600 50000 336...View the full answer
