0 Required information The following information applies to the questions displa
ID: 2407536 • Letter: 0
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0 Required information 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 2017 departmental income statements show the following. ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expensen t. 100 Dept. 200 Combined 453,000 $292,000 $745,000 267,000 214,000 481,000 8,000264,000 186,000 Direct expensers 32,000 7,400 18,000 14,000 Advertising Store supplies used Depreciation-Store equipment Total direct expenses ,000 ,400 26,800- ,3,200 21,100 8,500 47,900 Allocated expenses 46,800 124,800 4,790 14,210 7,500 17,200 18,720 12,480 31,200 3,000 ,300 4,470194,710 95,570 242,610 78,000 9,420 9,700 Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses Total allocated expenses 1,900 2,500 120,240 147,040 1,100 1,800 Total expenses s 38,960 $(17,570) 21,390 Net income (loss)Explanation / Answer
Reconciliation of Combined Income with Forecasted Income :-
Combined Net Income
21390
(-) Avoidable Sales
292000
(+) Avoidable Direct & Allocated Exp (Working Note 1)
302455
Forecasted Net Income
31845
Working Note 1:- (Avoidable Direct & Allocated Exp)
COGS
214000
Advertising
14000
Store Supplies
3400
Avoidable cost of office salary & Sales Salary (working note 2)
62400
Bad Debts
7500
Insurance Exp (1100 * 69%)
759
Miscellaneous Exp (1800 * 22%)
396
Avoidable Allocated Exp
302455
Working Note 2:- (Avoidable cost of office salary & Sales Salary):-
Plan 1
Avoid Cost allocated to Dept 200
Plan 2
Quit two Sales clerk & Shift of Duties
Avoidable cost of office salary & Sales Salary
(46800 + 12480)
=59280
(31200 * 2)
=62400
Plan 2 is beneficial i.e. Quit two Sales clerk & Shift of Duties
Combined Net Income
21390
(-) Avoidable Sales
292000
(+) Avoidable Direct & Allocated Exp (Working Note 1)
302455
Forecasted Net Income
31845
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