Home 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 2011 departmental income statement shows the following.

In analyzing whether to eliminate Department 200, management considers the following:
a. The company has one office worker who earns $1,200 per week, or $62,400 per year, and four salesclerks who each earn $1,000 per week, or $52,000 per year.
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; 70% of the insurance expense allocated to it to cover its merchandise inventory; and 25% of the miscellaneous office expenses presently allocated to it.

Required
1. Prepare a three-column report that lists items and amounts for
(a) The company€™s total expenses (including cost of goods sold) €” in column 1,
(b) The expenses that would be eliminated by closing Department 200 €” in column 2, and (c) The expenses that will continue €” in column 3.
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.
Analysis Component
3. Reconcile the company€™s combined net income with the forecasted net income assuming that Department 200 is eliminated (list both items and amounts). Analyze the reconciliation and explain why you think the department should or should not beeliminated.

HOME DECOR COMPANY Departmental Income Statements For Year Ended December 31,2011 Dept. 100 Dept. 200 Combined Sales Cost of goods sold Gross profit Operating expenses $872,000 $580,000 $1,452,000 938,000 514,000 524,000 414.000 66.000 348,000 Direct expenses 34,000 8,000 0,000 52,000 24,000 7.600 6.600 38,200 58,000 15.600 6,600 90,200 Store supplies used.a.... Allocated expenses 78,000 9.440 16,200 37440 24,960 2,200 3,200 134,000 72.200 130,000 18.880 19.800 Rent expense Bad debts expenser . Office salary Insurance expense Miscellaneous office expenses Total allocated expenses.. 208,000 28.320 36,000 62,400 6,200 8,000 348,920 439120 4,000 4,800 214.920 266.920 Total expenses .