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 2017 departmental income statements shows the following.

ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017
	Dept. 100					Dept. 200					Combined
Sales		$	450,000				$	281,000				$	731,000
Cost of goods sold			260,000					214,000					474,000
Gross profit			190,000					67,000					257,000
Operating expenses
Direct expenses
Advertising			15,500					11,500					27,000
Store supplies used			5,500					5,100					10,600
Depreciation—Store equipment			5,000					3,900					8,900
Total direct expenses			26,000					20,500					46,500
Allocated expenses
Sales salaries			65,000					39,000					104,000
Rent expense			9,420					4,710					14,130
Bad debts expense			9,600					7,700					17,300
Office salary			18,720					12,480					31,200
Insurance expense			1,500					700					2,200
Miscellaneous office expenses			2,300					1,500					3,800
Total allocated expenses			106,540					66,090					172,630
Total expenses			132,540					86,590					219,130
Net income (loss)		$	57,460				$	(19,590	)			$	37,870

In analyzing whether to eliminate Department 200, management considers the following:

The company has one office worker who earns $600 per week, or $31,200 per year, and four sales clerks who each earn $500 per week, or $26,000 per year for each salesclerk.

The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged to Department 200. The salary of the fourth clerk, who works half-time in both departments, is divided evenly between the two departments.

Eliminating Department 200 would avoid the sales salaries and the office salary currently allocated to it. However, management prefers another plan. Two salesclerks have indicated that they will be quitting soon. Management believes that their work can be done by the other two clerks if the one office worker works in sales half-time. Eliminating Department 200 will allow this shift of duties. 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.

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.

Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies; 65% of the insurance expense allocated to it to cover its merchandise inventory; and 23% of the miscellaneous office expenses presently allocated to it.

ELEGANT DECOR COMPANY
Analysis of Expenses under Elimination of Department 200
	Total Expenses	Eliminated Expenses	Continuing Expenses
Direct expenses
Advertising	27,000	11,500	15,500
Store supplies used	10,600	5,100	5,500
Depreciation—Store equipment	8,900	0	8,900
Allocated expenses
Sales salaries	104,000	36,400	67,600
Rent expense	14,130	0	14,130
Bad debts expense	17,300	7.700.00	9,600
Office salary	31,200	15,600	15,600
Insurance expense	2,200	1,430	3,630
Miscellaneous office expenses	3,800	874	4,674
Total expenses	$219,130	$70,904	$145,134

keeps telling me inncomplete  

Answer 1

ELEGANT DECOR COMPANY
Analysis of Expenses under Elimination of Department 200
	Total Expenses	Eliminated Expenses	Continuing Expenses
Cost of goods sold	731000	281000	450000
DIRECT EXPENSES:
Advertising	27,000	11,500	15,500
Store supplies used	10,600	5,100	5,500
Depreciation—Store equipment	8,900	0	8,900
Total direct expenses	46,500	16,600	29,900
ALLOCATED EXPENSES:			0
Sales salaries	104,000	36,400	67,600
Rent expense	14,130	0	14,130
Bad debts expense	17,300	7700	9,600
Office salary	31,200	15,600	15,600
Insurance expense	2,200	455	1,745
		[700*0.65]
Miscellaneous office expenses	3,800	345	3,455
		[1500*0.23]
Total allocated expenses	172,630	60,500	112,130
Total expenses	$950,130	$358,100	$592,030