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 departmental income statements show the following. ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019 Dept. 100 Dept. 200 Combined Sales $ 444,000 $ 281,000 $ 725,000 Cost of goods sold 261,000 210,000 471,000 Gross profit 183,000 71,000 254,000 Operating expenses Direct expenses Advertising 16,500 13,000 29,500 Store supplies used 5,500 4,900 10,400 Depreciation—Store equipment 4,200 2,800 7,000 Total direct expenses 26,200 20,700 46,900 Allocated expenses Sales salaries 65,000 39,000 104,000 Rent expense 9,430 4,770 14,200 Bad debts expense 9,600 7,300 16,900 Office salary 15,600 10,400 26,000 Insurance expense 2,300 1,400 3,700 Miscellaneous office expenses 2,100 1,500 3,600 Total allocated expenses 104,030 64,370 168,400 Total expenses 130,230 85,070 215,300 Net income (loss) $ 52,770 $ (14,070 ) $ 38,7 The company has one office worker who earns $500 per week, or $26,000 per year, and four salesclerks who each earns $500 per week, or $26,000 per year for each salesclerk. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged to Department 200. The salary of the fourth clerk, who works half-time in both departments, is divided evenly between the two departments. 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. 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. Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies; 72% of the insurance expense allocated to it to cover its merchandise inventory; and 24% of the miscellaneous office expenses presently 1. Complete the following report showing total expenses, expenses that would be eliminated by closing Department 200 and the expenses that would continue. The statement should reflect the reassignment of the office worker to one-half time as salesclerk. ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Expenses Eliminated Expenses Continuing Expenses Direct expenses Allocated expenses Total expenses $0 $0 $0

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 departmental income statements show the following. ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019 Dept. 100 Dept. 200 Combined Sales $ 444,000 $ 281,000 $ 725,000 Cost of goods sold 261,000 210,000 471,000 Gross profit 183,000 71,000 254,000 Operating expenses Direct expenses Advertising 16,500 13,000 29,500 Store supplies used 5,500 4,900 10,400 Depreciation—Store equipment 4,200 2,800 7,000 Total direct expenses 26,200 20,700 46,900 Allocated expenses Sales salaries 65,000 39,000 104,000 Rent expense 9,430 4,770 14,200 Bad debts expense 9,600 7,300 16,900 Office salary 15,600 10,400 26,000 Insurance expense 2,300 1,400 3,700 Miscellaneous office expenses 2,100 1,500 3,600 Total allocated expenses 104,030 64,370 168,400 Total expenses 130,230 85,070 215,300 Net income (loss) $ 52,770 $ (14,070 ) $ 38,7 The company has one office worker who earns $500 per week, or $26,000 per year, and four salesclerks who each earns $500 per week, or $26,000 per year for each salesclerk. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged to Department 200. The salary of the fourth clerk, who works half-time in both departments, is divided evenly between the two departments. 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. 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. Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies; 72% of the insurance expense allocated to it to cover its merchandise inventory; and 24% of the miscellaneous office expenses presently 1. Complete the following report showing total expenses, expenses that would be eliminated by closing Department 200 and the expenses that would continue. The statement should reflect the reassignment of the office worker to one-half time as salesclerk. ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Expenses Eliminated Expenses Continuing Expenses Direct expenses Allocated expenses Total expenses $0 $0 $0

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019
	Dept. 100	Dept. 200	Combined
Sales		$	444,000	$	281,000		$	725,000
Cost of goods sold			261,000		210,000			471,000
Gross profit			183,000		71,000			254,000
Operating expenses
Direct expenses
Advertising			16,500		13,000			29,500
Store supplies used			5,500		4,900			10,400
Depreciation—Store equipment			4,200		2,800			7,000
Total direct expenses			26,200		20,700			46,900
Allocated expenses
Sales salaries			65,000		39,000			104,000
Rent expense			9,430		4,770			14,200
Bad debts expense			9,600		7,300			16,900
Office salary			15,600		10,400			26,000
Insurance expense			2,300		1,400			3,700
Miscellaneous office expenses			2,100		1,500			3,600
Total allocated expenses			104,030		64,370			168,400
Total expenses			130,230		85,070			215,300
Net income (loss)		$	52,770	$	(14,070	)	$	38,7

The company has one office worker who earns $500 per week, or $26,000 per year, and four salesclerks who each earns $500 per week, or $26,000 per year for each salesclerk.
The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged to Department 200. The salary of the fourth clerk, who works half-time in both departments, is divided evenly between the two departments.
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.
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.
Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies; 72% of the insurance expense allocated to it to cover its merchandise inventory; and 24% of the
miscellaneous office expenses presently

1. Complete the following report showing total expenses, expenses that would be eliminated by closing Department 200 and the expenses that would continue. The statement should reflect the reassignment of the office worker to one-half time as salesclerk.

ELEGANT DECOR COMPANY
Analysis of Expenses under Elimination of Department 200
	Total Expenses	Eliminated Expenses	Continuing Expenses

Direct expenses



Allocated expenses






Total expenses	$0	$0	$0

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