The following information applies to the questions displayed below] Elegant Deco

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 Sales Cost of goods sold Dept. 100 Dept. 200 Combined $443,000 $283,000 $ 726,000 266,000214,0p0480,000 Gross profit Operating expenses 177,000 69,000 246,000 Direct expenses Advertising Store supplies used Depreciation-Store equipment 16,500 6,000 4,200 12,500 29,000 11,700 7,100 5,700 2,900 Total direct expenses 26,700 21,100 47,800 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses 78,000 9,500 9,600 18,720 2,100 2,700 46,800 4,750 7,400 12,480 1,200 2,000 124,800 14,250 17000 31,200 3,300 4,700 . Total allocated expenses 120,620 74,630 95,730 $ 29,680 (26730) 195,250 243,050 2,950 Total expenses 147,320 Net income (loss) In analyzing whether to eliminate Department 200, management considers the following: a. The company has one office worker who earns $600o who each earn $600 per week, or $31.200 per year for each salesclerk

Explanation / Answer

Elegent Décor Company Analysis of expenses under elimination of department 200 Total Expenses Eliminiated Expenses Continued Expenses Direct expenses Advertising 12500 12500 Stores Supplies 5700 5700 Depreciation -Stores Equipment 2900 2900 Total Direct expenses 21100 18200 2900 Allocated expenses Sales Salaries 46800 46800 Rent Expense 4750 4750 Bad-debts expense 7400 7400 Office Salaries 12480 12480 Insurance expense 1200 840 360 Miscellanous expenses 2000 320 1680 Total Allocated expenses 74630 67840 6790 Total 95730 86040 9690 Requirement 2 Forcasted annual income statement Under plan to eliminate the department 200 Sales 443000 Less : Cost of goods sold 266000 Gross margin 177000 Operating expenses Direct expenses Advertising 16500 Stores supplies 6000 Depreciation-Store equipment 7100 Allocated expenses Sales Salaries 78000 Rent expense 14250 Bad debts expense 9600 Office salary 15600 Insurance expense 2460 Miscellanous expenses 4380 Total Operating expenses 153890 Net Income 23110 Requirement Reconciliation of combined Income with forcasted Income Combined Income 2950 Add Net Expenses eliminated under closing Dept. 200 17040 Add expenses eliminiated due to change in management's plan for salary 3120 Forcasted Income 23110

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