Williams Company began operations in January 2015 with two operating (selling) d

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Williams Company began operations in January 2015 with two operating (selling) departments and one service (office) department. Its departmental income statements follow. WILLIAMS COMPANY Departmental Income Statements For Year Ended December 31, 2015 Clock Mirror Combined Sales $ 170,000 $ 95,000 $ 265,000 Cost of goods sold 83,300 58,900 142,200 Gross profit 86,700 36,100 122,800 Direct expenses Sales salaries 19,500 7,300 26,800 Advertising 1,700 700 2,400 Store supplies used 900 500 1,400 Depreciation—Equipment 2,100 300 2,400 Total direct expenses 24,200 8,800 33,000 Allocated expenses Rent expense 7,080 3,480 10,560 Utilities expense 3,000 1,800 4,800 Share of office department expenses 13,500 5,500 19,000 Total allocated expenses 23,580 10,780 34,360 Total expenses 47,780 19,580 67,360 Net income $ 38,920 $ 16,520 $ 55,440 Williams plans to open a third department in January 2016 that will sell paintings. Management predicts that the new department will generate $58,000 in sales with a 55% gross profit margin and will require the following direct expenses: sales salaries, $8,000; advertising, $1,200; store supplies, $700; and equipment depreciation, $600. It will fit the new department into the current rented space by taking some square foot-age from the other two departments. When opened the new painting department will fill one-fifth of the space presently used by the clock department and one-fourth used by the mirror department. Management does not predict any increase in utilities costs, which are allocated to the departments in proportion to occupied space (or rent expense). The company allocates office department expenses to the operating departments in proportion to their sales. It expects the painting department to increase total office department expenses by $8,200. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 10%. No changes for those departments’ gross profit percents or their direct expenses are expected except for store supplies used, which will increase in proportion to sales. Required: Prepare departmental income statements that show the company’s predicted results of operations for calendar year 2016 for the three operating (selling) departments and their combined totals. (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.)

Explanation / Answer

Departmental Income Statements:

Clock Mirror Paintings Combined Sales 187,000 104,500 58,000 349,500 Gross Profit 91,630 64,790 31,900 188,320 Direct expenses 24,290 8,850 10,500 43,640 Allocated expenses Rent expense 5,664 2,610 2,286 10,560 Utilities expense 2,400 1,350 1,050 4,800 Share of office department expenses 14,553 8,133 4,514 27,200 Net income 44,723 43,847 13,550 102,120

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