Problem 9-3A Departmental income statements; forecasts LO P3 Williams Company be

Question

Problem 9-3A Departmental income statements; forecasts LO P3 Williams Company began operations in January 2015 with two operating (selling) departments and one service (office) department. Its departmental income statements follow Departmental Income Statements For Year Ended December 31, 2015 Clock Mirror Combined Sales Cost of goods sold 190,000 $105000 $ 295,000 93,100 65.100 158 200 Gross profit Direct expenses 96.,900 39900 136,800 Sales salaries Advertising Store supplies used Depreciation-Equipment 22,0007 20029 200 800 2,900 300 1.300 200 2700 2,100 1,000 2,500 Total direct expenses 27,600 8,50036,100 Allocated expenses Rent expense Utilities expense Share of office department expenses 3,480 10 520 2,500 4.900 12,50010,000 22 500 7,040 2,400 21 940 15,90 37 920 49,540 24,480 74,020 47,360 15420 $ 62,780 Total allocated expenses Total expenses Net income Williams plans to open a third department in January 2016 that will sell paintings Management predicts that the new department will generate $45,000 in sales with a 65% gross profit margin and will require the

Explanation / Answer

WILLIAMS COMPANY

Forecasted departmental income statement

for the year ended december 31 2016

**Gross profit ratio for clock :96900/190000=.51 or 51%

for mirror :39900/105000=.38 or 38%

**Rent expense allocated to painting:

by clock : 7040*1/5=1408

mirror=3480*1/4=870

Total:2278

WILLIAMS COMPANY

Forecasted departmental income statement

for the year ended december 31 2016

clock Mirror Paintings combined sales 210900   [190000(1+.11)] 116550   [105000(1+.11)] 45000 372450 less:cost of goods sold (103341)    [210900-107559] (72261) (15750) (191352) Gross profit 107559   [210900*.51] 44289    [116550*.38] 29250 181098 Direct expense sales salaries 22000 7200 7000 36200 ADVertising 2100 800 800 3700 store supplies used 1110    [1000(1+.11)] 333    [300(1+.11)] 300 1743 equipment depreciation 2500 200 400 3100 Total direct expense 27710 8533 8500 44743 Allocated expense Rent expense 5632     [7040-1408] 2610      [3480-870] 2278 10520 Utilities expense 2623     [4900*5632/10520] 1216      [2610*4900/10520] 1061 4900 share of office department expense 17157    [30300*210900/372450] 9482    [30300*116550/372450] 3661 22500+ 7800= 30300 Total allocated expense 25412 13308 7000 45720 Total expense 53122 21841 15500 90463 Net Income 54437 22448 13750 90635

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