[The following information applies to the questions displayed below.] Elegant De

Question

[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 2015 departmental income statements shows the following ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2015 Dept. 200 $442,000 283,000 214,000 Dept. 100 261,000 181,000 Combined $ 725,000 475,000 Sales Cost of goods sold 69,000 250,000 Gross profit Operating expenses Direct expenses Advertising Store supplies used Depreciation Store equipment 16,000 4,500 4,400 12,500 4,000 3,000 28,500 8,500 7,400 Total direct expenses 24,900 19,500 44,400 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses 52,000 9.450 9,800 18,720 1,900 2,600 31,200 4,780 7,900 12,480 1,100 2,000 83,200 14,230 17,700 31,200 3,000 4,600 Total allocated expenses 59,460 153,930 198,330 $ 61,630 (9,960) 51,670 94,470 Total expenses 119,370 78,960 Net income (loss)

Explanation / Answer

Solution:

Analysis of Expenses under Elimination of Department 200 Total Expense Eliminated Expenses Continuing Expenses Direct Expenses Advertising                      28,500                                  12,500 16,000 Store Supplies used                         8,500                                    4,000 4,500 Depreciation - Store Equipment                         7,400                                           -   7,400 Total Direct Expenses                       44,400                                  16,500 27,900 Allocated Expenses Sales Salaries                       98,800                                  41,600 57,200 Rent Expenses                       14,230                                           -   14,230 Bad debts Expense                       17,700                                    7,900 9,800 Office Salary                       15,600                                           -   15,600 Insurance expense                         3,000                                        748 2,252 Miscellaneous office expense                         4,600                                        460 4,140 Total Allocated expenses                     153,930                                  50,708 103,222 Total Expenses                     198,330                                  67,208 131,122

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