Williams Company began operations in January 2017 with two operating (selling) d
ID: 2520271 • Letter: W
Question
Williams Company began operations in January 2017 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, 2017
Clock
Mirror
Combined
Sales
$
190,000
$
85,000
$
275,000
Cost of goods sold
93,100
52,700
145,800
Gross profit
96,900
32,300
129,200
Direct expenses
Sales salaries
21,500
8,700
30,200
Advertising
1,600
700
2,300
Store supplies used
500
650
1,150
Depreciation—Equipment
2,400
800
3,200
Total direct expenses
26,000
10,850
36,850
Allocated expenses
Rent expense
7,040
3,780
10,820
Utilities expense
3,200
2,300
5,500
Share of office department expenses
12,000
6,500
18,500
Total allocated expenses
22,240
12,580
34,820
Total expenses
48,240
23,430
71,670
Net income
$
48,660
$
8,870
$
57,530
Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $52,000 in sales with a 75% gross profit margin and will require the following direct expenses: sales salaries, $6,500; advertising, $1,000; store supplies, $1,000; and equipment depreciation, $700. 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 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 $7,400. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 7%. 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 2018 for the three operating (selling) departments and their combined totals. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
WILLIAMS COMPANY
Forecasted Departmental Income Statements
For Year Ended December 31, 2018
Clock
Mirror
Paintings
Combined
Sales
$203,300
$90,950
$52,000
$346,250
Cost of goods sold
99,617
56,389
13,000
169,006
Gross profit
103,683
34,561
39,000
177,244
Direct expenses
Sales salaries
21,500
8,700
6,500
36,700
Advertising
1,600
700
1,000
3,300
Store supplies used
535
696
1,000
2,231
Depreciation of equipment
2,400
800
700
3,900
Total direct expenses
26,035
10,896
9,200
46,131
Allocated expenses
Rent expense
5,632
2,835
2,353
10,820
Utilities expense
???
???
1,215
5,500
Share of office dept. expenses
???
???
???
???
Total allocated expenses
5,632
2,835
3,568
16,320
Total expenses
31,667
13,731
12,768
62,451
Net income
$72,016
$20,830
$26,232
$114,793
Williams Company began operations in January 2017 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, 2017
Clock
Mirror
Combined
Sales
$
190,000
$
85,000
$
275,000
Cost of goods sold
93,100
52,700
145,800
Gross profit
96,900
32,300
129,200
Direct expenses
Sales salaries
21,500
8,700
30,200
Advertising
1,600
700
2,300
Store supplies used
500
650
1,150
Depreciation—Equipment
2,400
800
3,200
Total direct expenses
26,000
10,850
36,850
Allocated expenses
Rent expense
7,040
3,780
10,820
Utilities expense
3,200
2,300
5,500
Share of office department expenses
12,000
6,500
18,500
Total allocated expenses
22,240
12,580
34,820
Total expenses
48,240
23,430
71,670
Net income
$
48,660
$
8,870
$
57,530
Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $52,000 in sales with a 75% gross profit margin and will require the following direct expenses: sales salaries, $6,500; advertising, $1,000; store supplies, $1,000; and equipment depreciation, $700. 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 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 $7,400. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 7%. 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 2018 for the three operating (selling) departments and their combined totals. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
WILLIAMS COMPANY
Forecasted Departmental Income Statements
For Year Ended December 31, 2018
Clock
Mirror
Paintings
Combined
Sales
$203,300
$90,950
$52,000
$346,250
Cost of goods sold
99,617
56,389
13,000
169,006
Gross profit
103,683
34,561
39,000
177,244
Direct expenses
Sales salaries
21,500
8,700
6,500
36,700
Advertising
1,600
700
1,000
3,300
Store supplies used
535
696
1,000
2,231
Depreciation of equipment
2,400
800
700
3,900
Total direct expenses
26,035
10,896
9,200
46,131
Allocated expenses
Rent expense
5,632
2,835
2,353
10,820
Utilities expense
???
???
1,215
5,500
Share of office dept. expenses
???
???
???
???
Total allocated expenses
5,632
2,835
3,568
16,320
Total expenses
31,667
13,731
12,768
62,451
Net income
$72,016
$20,830
$26,232
$114,793
Explanation / Answer
WILLIAMS COMPANY Forecasted Departmental Income Statements For the Year Ended Dec 31, 2018 Clock Mirror Paintings Comined Sales 203,300.00 90,950.00 52,000.00 346,250.00 Cost of goods sold 99,617.00 56,389.00 13,000.00 169,006.00 Gross profit 103,683.00 34,561.00 39,000.00 177,244.00 Direct expenses Sales salaries 21,500.00 8,700.00 6,500.00 36,700.00 Advertising 1,600.00 700.00 1,000.00 3,300.00 Store supplies used 535.00 696.00 1,000.00 2,231.00 Depreciation of equipment 2,400.00 800.00 700.00 3,900.00 Total direct expenses 26,035.00 10,896.00 9,200.00 46,131.00 Allocated expenses Rent expense 5,632.00 2,835.00 2,353.00 10,820.00 Utilities expense 2,560.00 1,725.00 1,215.00 5,500.00 Share of office dept. expenses 15,207.00 6,803.00 3,890.00 25,900.00 Total allocated expenses 23,399.00 11,363.00 7,458.00 42,220.00 Total expenses 49,434.00 22,259.00 16,658.00 88,351.00 Net income 54,249.00 12,302.00 22,342.00 88,893.00 Utilities Expense: Clock - $3,200 X 4/5 2,560.00 Mirror - $2,300 X 3/4 1,725.00 Paintings - $3,200 X 1/5 + $2,300 X 1/4 1,215.00 Share of Office Dept Expenses Clock - $25,900 X ($203,300 / $346,250) 15,207.00 Mirror - $25,900 X ($90,950 / $346,250) 6,803.00 Paintings - $25,900 X ($52,000 / $346,250) 3,890.00
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