Question

Required information [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 Departmental Income Statements For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses Dept. 100 Dept. 200 Combined $282,000 215,000 67,000 $444,000 264,000 180,000 $726,000 479,000 247,000 Direct expenses Advertising Store supplies used Depreciation-Store equipment Total direct expenses 16,500 6,000 4,400 26,900 12,500 5,400 2,800 20,700 29,000 11,400 7,200 47,600 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses Total allocated expenses 124,800 14,210 17,000 31,200 3,300 3,400 193,910 241,510 $33,120 (27,630) 5,490 78,000 9,460 9,600 18,720 2,100 2,100 119,980 146,880 46,800 4,750 7,400 12,480 1,200 1,300 73,930 94,630 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 $600 per week, or $31,200 per year, and four sales clerks who each b. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged to earn $600 per week, or $31,200 per year for each salesclerk. 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.

Answer 1

Elegant Décor Company Analysis of Expenses under Elminiation of Dept.200 Total Expenses Continuing Expenses Eliminated Expenses Cost of Goods Sold 479000 215000 264000 Direct Expenses Advertising 29000 11400 7200 12500 16500 6000 6000 Stores Supplies Used 5400 Depriciation-store Equipment Allocated Expenses 1 Sales Salaries 2 Rent Expense 3 Bad Debt Expense 4 Office Salary 5 Insurance Expense 5 Miscellaneous Office Expense 124800 14210 17000 31200 3300 3400 14210 9600 15600 2460 3075 7400 840 325 Total Expenses 720510 303865 415445 l Insurance Expenses Allocated to Dept 200=$1200 of which 70% eliminated-$1200*70%=$840 2 Mis. Office Expenses Allocated to Dept 200-$1,300 of which 25% eliminated-$1300*25%-$325