Chapter 23, Problem 6PSA

1.

To determine

To prepare: Three column report for total expenses, eliminated expenses and continuing expenses.

Explanation of Solution

Given below is the three column report for analysis of expenses under elimination of department 200 of E Company:

E Company
Particulars	Total expenses ($)	Eliminated expenses ($)	Continuing expenses ($)
Cost of goods sold	469,000	207,000	262,000
Direct expenses
Advertising	29,000	12,000	17,000
Store supplies used	7,800	3,800	4,000
Depreciation − Store equipment	8,300		8,300
Allocated expenses
Sales salaries	104,000	52,000	52,000
Rent expenses	14,160		14,160
Bad debts expenses	18,000	8,100	9,900
Office salary	31,200	-	31,200
Insurance expenses	3,100	770	2,330
Miscellaneous office expenses	4,000	400	3,600
Total expenses	688,560	284,070	404,490
Table (1)

Hence, total expenses are $688,560, eliminated expenses are $284,070 and continuing expenses are $404,490.

2.

To determine

To prepare: Forecasted annual income statement under plan to eliminate department 200.

Explanation of Solution

Given below is the forecasted annual income statement of E Company:

Annual income statement
Particulars	Amount ($)
Sales	436,000
Less: Cost of goods sold	262,000
Gross profit $\left(\text{A}\right)$	174,000
Operating expenses
Advertising	17,000
Store supplies	4,000
Depreciation-Store equipment	8,300
Total direct expenses $\left(\text{B}\right)$	29,300
Allocated expenses
Sales salaries	67,600
Rent expenses	14,160
Bad debts expenses	9,900
Office salary	15,600
Insurance expenses	2,330
Miscellaneous office expense	3,600
Total allocated expenses $\left(\text{C}\right)$	113,190
Total expenses $\left(\text{D}\right)=\left(\text{B}\right) +\left(\text{C}\right)$	142,490
Net income (loss) $\left(\text{A}\right)-\left(\text{D}\right)$	31,510
Table (2)

Hence, forecasted net income is $31,510.

3.

To determine

To prepare: Reconciliation statement of combined income with forecasted income.

Explanation of Solution

Given below is the reconciliation statement of combined income with forecasted income of E Company:

Reconciliation statement
Particulars	Amount ($)
Combined net income	37,440
Savings of total expenses	284,070
Loss of revenue (sales)	(290,000)
Forecasted income	31,510
Table (3)

Hence, forecasted income reconcile with combined income at $31,510.