Time-To-See Company began operations in January 2011 with two operating (selling) departments and one service (office) department. Its departmental income statements follow.

Time-To-See plans to open a third department in January 2012 that will sell paintings. Management predicts that the new department will generate $35,000 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-sixth 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 7%. 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 2012 for the three operating (selling) departments and their combined totals.

TIME-TO-SEE COMPANY Departmental Income Statements ForYear Ended December 31 , 201 1 Clock Mirror Combined Cost of goods sold... Gross profit Direct expenses $122,500 $52,500 $175,000 92,000 83,000 60,000 32,000 62,500 20.500 27,000 1.700 1.300 .800 31.800 ..20,000 7.000 1,200 Advertising Store suppliles u used.... 1,500 23,600 Total direct expenses 8.200 Allocated expenses Rent expense Utlitles expense Share of office department expenses .. Total allocated expenses.. 0.800 4,000 15.000 29,800 61.600 $ 18,780 2.620 21,400 7.020 3,780 2,600 1400 10,500 4.500 20,120 9.680 43,720 17880 Total expenses Net Income