Elegant Decor Company\'s management is trying to decide whether to eliminate Dep

Question

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 2015 departmental income statements shows the following ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2015 Dept. 100 268,000 174,000 Dept. 200 Sales Cost of goods sold $442,000 282,000 215,000 Combined $ 724,000 483,000 67,000 241,000 Gross profit Operating expenses Direct expenses Advertising Store supplies used Depreciation-Store equipment 17,500 5,500 4,000 14,000 5,000 2,700 31,500 10,500 6700 Total direct expenses 27,000 21,700 48,700 Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses 78,000 9,450 9,500 15,600 1,700 2,500 46,800 4,700 7,500 10,400 1,000 1,800 124,800 14,150 17,000 26,000 2,700 4,300 Total allocated expenses 116,750 72,200 188,950 237,650 $ 30,250 (26,900) $3,350 Total expenses 143,750 93,900 Net income (loss)

Explanation / Answer

ELEGANT DECOR COMPANY

Analysis of expenses under elimination of department 200

Total Expenses Eliminated Expenses Continuing Expenses Direct Expenses Advertising 31500 14000 17500 Store supplies used 10500 5000 5500 Depreciation-stores equipment 6700 0 6700 Allocated expense Sales salaries 124800 46800 78000 Rent expenses 14150 0 14150 Bad debts Expenses 17000 7500 9500 office salary 26000 10400 15600 Insurance expenses 2700 1000 1700 Miscellaneous office expenses 4300 1800 2500 Total expenses 237650 86500 151150

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