Chapter 23, Problem 6PSB

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 Z of E Company:

E Company
Particulars	Total expenses ($)	Eliminated expenses ($)	Continuing expenses ($)
Cost of goods sold	586,400	125,100	461,300
Direct expenses
Advertising	30,000	3,000	27,000
Store supplies used	7,000	1,400	5,600
Depreciation − Store equipment	21,000		21,000
Allocated expenses
Sales salaries	93,600	33,800	59,800
Rent expenses	27,600		27,600
Bad debts expenses	25,000	4,000	21,000
Office salary	26,000	13,000	13,000
Insurance expenses	5,600	910	4,690
Miscellaneous office expenses	4,200	750	3,450
Total expenses	826,400	181,960	644,440
Table (1)

Hence, total expenses are $826,400, eliminated expenses are $181,960 and continuing expenses are $644,440.

2.

To determine

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

Explanation of Solution

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

Annual income statement
Particulars	Amount ($)
Sales	700,000
Less: Cost of goods sold	461,300
Gross profit $\left(\text{A}\right)$	238,700
Operating expenses
Advertising	27,000
Store supplies	5,600
Depreciation-Store equipment	21,000
Total direct expenses $\left(\text{B}\right)$	53,600
Allocated expenses
Sales salaries	59,800
Rent expenses	27,600
Bad debts expenses	21,000
Office salary	13,000
Insurance expenses	4,690
Miscellaneous office expense	3,450
Total allocated expenses $\left(\text{C}\right)$	129,540
Total expenses $\left(\text{D}\right)=\left(\text{B}\right) +\left(\text{C}\right)$	183,140
Net income (loss) $\left(\text{A}\right)-\left(\text{D}\right)$	55,560
Table (2)

Hence, forecasted net income is $55,560.

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	48,600
Savings of total expenses	181,960
Loss of revenue (sales)	(175,000)
Forecasted income	55,560
Table (3)

Hence, forecasted income reconcile with combined income at $55,560.