Question

Required Information Problem 10-6A Analysis of possible elimination of a department LO A1 (The following information applies to the questions displayed below 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 2017 departmental Income statements shows the following ELEGANT DECOR COMPANY Departsental Incone Statenents For Year Ended December 31, 2017 ed Dept. 100 $449,eee 261,eee Dept. 200 $284,e Cotbined Sales $733,ee Cost of goods sold 2e9,ege Gross profit 188, ee 75,ese 263aee Operating expenses Direct expenses Advertising Store supplies used Depreciation-Store equiprent 26.Sue 9see 15,eee 4.See এ see 18 6e0 Total direct expenses Allocated expenses 24 28e i04,e HALTO 65,ee 9,42 9,5e8 Sales salaries 4 7 4 ie 4 Rent expense nces Bad debts expense 15,680 DfFice salary 1 260 2,180 Insurance expense 2, 3e Miscellaneous office expenses 643u ES 211/136 183,920 Total allocated expenses 128,120 Total expenses S 59, 888 ১ Net incone (loss) in analyzing whether to eliminate Department 200, management considers the folowing e. The company has one office worker who earns $500 per week or $26.000 per year, and four sales clerks who each am CEnn nor e or 6nnn nerAarfor nes calnrcinel Next of 6 < Prex nEo to conrch

Answer 1

Solutions:

Elegant Decor Company Analysis of Expenses under elimination of Department 200 Particulars Total Expenses Eliminated Expenses Continuing expenses 7 Cost of good sold $470,000.00 $209,000.00 $261,000.00 Direct Expenses: Advertising $26,500.00 $11,500.00 $15,000.00 10 Store supplies used $9,500.00 $4,500.00 $5,000.00 11 Depreciation - Store Equipment $6,800.00 $0.00 $6,800.00 Allocated Expenses: 13 Sales Salaries $104,000.00 $39,000.00 $65,000.00 14 Rent Expense $14,210.00 $0.00 $14,210.00 15 Bad debts expense $16,900.00 $7,400.00 $9,500.00 16 Office salary $26,000.00 $13,000.00 $13,000.00 17 Insurance Expense $3,300.00 $804.00 $2,496.00 18 Miscellaneous office expense $3,900.00 $304.00 $3,596.00 19 20 Total Expenses $681,110.00 $285,508.00 $395,602.00 12 Sheet805 (2) Sheet762 Sheet574 (6) Sheet765 She III 0 <

Elegatn Décor Company Forecasted annual income statement Under plan to eliminate Department 200 Particulars Amount Sales $449,000.00 Cost of goods sold $261,000.00 Gross Profit $188,000.00 Operating Expenses: Advertising $15,000.00 Store supplies used $5,000.00 Depreciation - Store Equipment $6,800.00 Sales Salaries $65,000.00 Rent Expense $14,210.00 Bad debts expense $9,500.00 Office salary $13,000.00 Insurance Expense $2,496.00 Miscellaneous office expense $3,596.00 Total operating expenses $134,602.00 13 14 18 19 20 22 23 Net Operating Income $53,398.00 24 25 26 27 Elegatn Décor Company Reconciliation of combined income with forecasted income Particulars Amount Combined Net Income $51,890.00 Add: Eliminated expenses $285,508.00 Less: Dept 200's lost sales $284,000.00 28 31 Forecasted net income $53,398.00 33 34 35 36 37 38 39 40 Sheet805 (2) Sheet762 Sheet574 (6) Sheet765 She