10 Required Informatlon IThe following Information appliles to the questions dis
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10 Required Informatlon IThe following Information appliles to the questions displayed below. Elegant Decor Company's management is trying to decide whether to ellminate Department 200, which has produced Part 1 of 3 losses or low profits for several years. The company's 2017 departmental Income statements show the following. 0.34 points ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses Dept. 1ee Dept. 2ee Combined $451,ee0e $292,ee0 $743,00e 473,800 27,0ee eBook 263,80e 218,80e 188,eee 82.00 Direct expenses Print Advertising Store supplies used Depreciation-store equipment Total direct expenses 16,eee 6,800 4.400 26,400 5,5e 3,3ee 19,8e 27,eee 11,5ee 7,7ee 46.28 References Allocated expenses Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses Total allocated expenses 65.00 39,800 1e4,000 14,228 17,400 36,4ee 3,eee 3,5ee 178,528 9,45e 9,888 4,770 7,68e 14, 56e 1,100 1.400 21,840 1,9ee 2,1ee 118,89e 136.49e Total expenses Net income (loss) 88,23 $ 51,51e $ (6, 230) $ 45,28e In analyzing whether to ellminate Department 200, management conslders the followIng: a. The company has one office worker who earns $700 per week, or $36,400 per year, and four salesclerks who each b. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk Is charged to earn $500 per week, or $26,000 per year for each salesclerk. Department 200. The salary of the fourth clerk, who works half-time In both departments, is divided evenly between the two departments c. Eliminating Department 200 would avold the sales salaries and the office salary currently allocated to It. However, management prefers another plan. Two salesclerks have Indicated that they will be qultting soon. Management belleves that thelr work can be done by the other two clerks If the one office worker works In sales half-time Ellminating Department 200 will allow this shift of dutles. If this change Is Implemented, half the office worker's salary would be reported as sales salaries and half would be reported as office salary d. The store building is rented under a long-term lease that cannot be changed. Therefore, Department 100 will use the space and equipment currently used by Department 200. e. Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies: 66% of the insurance expense allocated to lt to cover its merchandise inventory; and 16% of the miscellaneous office expenses presently allocated to It.Explanation / Answer
1.
Total Expenses
Eliminated Expenses
Continuing Expenses
Direct Expenses
Advertising
27000
11000
16000
Store Suplies used
11500
5500
6000
Depreciation
7700
3300
4400
Allocated Expenses
Sales Salaries
104000
33800
70200
Rent Expense
14220
14220
Bad Debts
17400
7600
9800
Office Salary
36400
18200
18200
Insurance
3000
726
2274
Misc Office Expenses
3500
224
3276
Total Expenses
224720
80350
144370
2.Income Statement
Sales
451000
COGS
263000
Gross Profit
188000
Operating Expenses
Advertising
16000
StoreSupplies
6000
Depreciation
4400
Allocated Expenses
Sales Salaries
70200
Rent Expense
14220
Bad Debts
9800
Office Salary
18200
Insurance
2274
Misc
3276
Total Expenses
144370
3.Analysis Component
Combined Net Income
45280
Gross Profit Lost
82000
Expenses Eliminated
80350
Forecasted Net Income
43630
Total Expenses
Eliminated Expenses
Continuing Expenses
Direct Expenses
Advertising
27000
11000
16000
Store Suplies used
11500
5500
6000
Depreciation
7700
3300
4400
Allocated Expenses
Sales Salaries
104000
33800
70200
Rent Expense
14220
14220
Bad Debts
17400
7600
9800
Office Salary
36400
18200
18200
Insurance
3000
726
2274
Misc Office Expenses
3500
224
3276
Total Expenses
224720
80350
144370
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