Elegant Decor Company's management is trying to decide whether to eliminate Department 200, which has produced...

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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 $450,000 265,000 Dept. 200 $281,000 Combined $731,000 Sales 207,000 472,000 Cost of goods sold. Gross profit 185,000 74,000 259,000 Operating expenses Direct expenses Advertising 18,000 13,500 31,500 Store supplies used 5,500 5,100 10,600 Depreciation-Store equipment 4,800 3,300 8,100 Total direct expenses 28,300 21,900 50,200 Allocated expenses 65,000 39,000 104,000 Sales salaries Rent expense 9,450 4,770 14,220 9,600 7,600 17,200 Bad debts expense Office salary 21,840 14,560 36,400 Insurance expense 2,500 1,700 4,200 3,500 Miscellaneous office expenses 2,100 1,400 Total allocated expenses 110,490 69,030 179,520 229,720 138,790 90,930 $ 46,210 $(16,930) $ 29,280 Total expenses Net income (loss) In analyzing whether to eliminate Department 200, management considers the following: a. The company has one office worker who earns $700 per week, or $36,400 per year, and four salesclerks who each earns $500 per week, or $26,000 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; 73% of the insurance expense allocated to it to cover its merchandise inventory; and 19% of the miscellaneous office expenses presently allocated to it. 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. ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Eliminated Continuing Expenses Expenses Expenses Direct expenses Allocated expenses $ 0 4 Total expenses 0 0 $ as a salesclerk. ELEGANT DECOR COMPANY Forecasted Annual Income Statement Under Plan to Eliminate Department 200 Operating expenses Total operating expenses $ 0 0 0 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 $450,000 265,000 Dept. 200 $281,000 Combined $731,000 Sales 207,000 472,000 Cost of goods sold. Gross profit 185,000 74,000 259,000 Operating expenses Direct expenses Advertising 18,000 13,500 31,500 Store supplies used 5,500 5,100 10,600 Depreciation-Store equipment 4,800 3,300 8,100 Total direct expenses 28,300 21,900 50,200 Allocated expenses 65,000 39,000 104,000 Sales salaries Rent expense 9,450 4,770 14,220 9,600 7,600 17,200 Bad debts expense Office salary 21,840 14,560 36,400 Insurance expense 2,500 1,700 4,200 3,500 Miscellaneous office expenses 2,100 1,400 Total allocated expenses 110,490 69,030 179,520 229,720 138,790 90,930 $ 46,210 $(16,930) $ 29,280 Total expenses Net income (loss) In analyzing whether to eliminate Department 200, management considers the following: a. The company has one office worker who earns $700 per week, or $36,400 per year, and four salesclerks who each earns $500 per week, or $26,000 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; 73% of the insurance expense allocated to it to cover its merchandise inventory; and 19% of the miscellaneous office expenses presently allocated to it. 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. ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Eliminated Continuing Expenses Expenses Expenses Direct expenses Allocated expenses $ 0 4 Total expenses 0 0 $ as a salesclerk. ELEGANT DECOR COMPANY Forecasted Annual Income Statement Under Plan to Eliminate Department 200 Operating expenses Total operating expenses $ 0 0 0

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