Williams Company began operations in January 2017 with two operating (selling) d
ID: 2522522 • Letter: W
Question
Williams Company began operations in January 2017 with two operating (selling) departments and one service (office) department. Its departmental income statements follow.
Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $47,000 in sales with a 45% gross profit margin and will require the following direct expenses: sales salaries, $8,000; advertising, $800; store supplies, $400; and equipment depreciation, $800. 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-fourth 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 $7,200. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 8%. 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 2018 for the three operating (selling) departments and their combined totals. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
Departmental Income Statements
For Year Ended December 31, 2017 Clock Mirror Combined Sales $ 190,000 $ 125,000 $ 315,000 Cost of goods sold 93,100 77,500 170,600 Gross profit 96,900 47,500 144,400 Direct expenses Sales salaries 20,000 8,600 28,600 Advertising 2,000 300 2,300 Store supplies used 1,000 350 1,350 Depreciation—Equipment 1,600 200 1,800 Total direct expenses 24,600 9,450 34,050 Allocated expenses Rent expense 7,080 3,960 11,040 Utilities expense 2,500 2,100 4,600 Share of office department expenses 10,000 6,500 16,500 Total allocated expenses 19,580 12,560 32,140 Total expenses 44,180 22,010 66,190 Net income $ 52,720 $ 25,490 $ 78,210
Explanation / Answer
WILLIAMS COMPANY Forecasted Departmental Income Statements For the Year Ended Dec 31, 2018 Clock Mirror Paintings Comined Sales 205,200 135,000 47,000 387,200 Cost of goods sold 100,548 83,700 25,850 210,098 Gross profit 104,652 51,300 21,150 177,102 Direct expenses Sales salaries 20,000 8,600 8,000 36,600 Advertising 2,000 300 800 3,100 Store supplies used 1,080 378 400 1,858 Depreciation of equipment 1,600 200 800 2,600 Total direct expenses 24,680 9,478 10,000 44,158 Allocated expenses Rent expense 5,664 2,970 2,406 11,040 Utilities expense 2,360 1,238 1,002 4,600 Share of office dept. expenses 12,560 8,263 2,877 23,700 Total allocated expenses 20,584 12,471 6,285 39,340 Total expenses 45,264 21,949 16,285 83,498 Net income 59,388 29,351 4,865 93,604 Utilities Expense: Clock - $4,600 X (5,664 / 11,040) 2,360 Mirror - $4,600 x ($2,970 / $11,040) 1,238 Paintings - $4,600 X ($2406 / $11,040) 1,002 Share of Office Dept Expenses Clock - $23,700 X ($205,200 / $387,200) 12,560 Mirror - $23,700 X ($135,000 / $387,200) 8,263 Paintings - $23,700 X ($47,000 / $387,200) 2,877
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