Problem 9-3A Departmental income statements; forecasts LO P3 Wilams Company bega

Question

Problem 9-3A Departmental income statements; forecasts LO P3 Wilams Company began operations in January 2015 with two operating (selling) departments and one service (office) department. Its departmental income statements follow. ILLIAMS COMPANY Departmental Income Statements For Year Ended December 31, 2015 Sales Cost of goods sold $130,000 $55,000$185,000 63,700 34,100 97800 Gross proft Direct expenses Sales salaries Advertising Store supplies used Depreciation-Equipment 66,300 20900 87200 20,0007,000 27 000 1,700 1,300 1,800 1,200 900 1,500 500 400 300 Total direct expenses 23,600 8200 31.800 Allocated expenses Rent expense Utilities expense Share of office department expenses 7,020 3,780 10 800 2,600 1400 4,000 10,500 4,500 15,000 Total allocated expenses 20,120 9680 29 800 43,720 17880 61600 s 22,580 3,020 25,600 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 $50 On sales th a 55% gross profit margin and will require the following direct expenses: sales salaries, $8,000; advertising, $800, store supplies, $500, and equipment depreciation, $200. It will fit the new department into the current rented space by taking some square footage 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

Explanation / Answer

WILLIAMS COMPANY Forecasted Departmental Income statements For the year ending December 31st 2016 Clock Mirror Painting Combined (PY) (Forecasted) (PY) (Forecasted) (Forecasted) (Forecasted) Basis of allocation Particulars (Dec 31, 2015) (Dec 31, 2016) (Dec 31, 2015) (Dec 31, 2016) (Dec 31, 2016) (Dec 31, 2016) ($) ($) ($) ($) ($) ($) 1 Sales 130,000 140,400 55,000 59,400 50,000 249,800 2 COGS -63,700 -68,796 -34,100 -36,828 22,500 -83,124 3 Gross profit [1-2] 66,300 71,604 20,900 22,572 27500 121,676 Direct expenses : 4 Sales salaries 20,000 21,600 7,000 7,560 8,000 37,160 5 Advertising 1,200 1,296 500 540 800 2,636 sales 6 Stores supplies used 900 972 400 432 500 1,904 7 Depreciation 1,500 1,620 300 375 200 2,195 8 Total direct expenses [4to 7] 23,600 25,488 8,200 8,907 9,500 43,895 Allocated expenses : floor space 9 Rent 7,020 5,616 3,780 2,835 2349 10,800 remains same 10 Utilities 2,600 2,600 1,400 1,400 870 4,870 sales ratio 11 Share of office exp 10,500 11,340 4,500 4,860 10225 26,425 12 Total allocated expenses [9 to 11] 20,120 19,556 9,680 9,095 13,444 42,095 13 Total expenses [8 +12] 43,720 45,044 17,880 18,002 22,944 85,990 14 Net Income [1 -13] 22,580 26,560 3,020 4,570 4,556 35,686

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