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	$	170,000		$	115,000		$	285,000
Cost of goods sold		83,300			71,300			154,600
Gross profit		86,700			43,700			130,400
Direct expenses
Sales salaries		22,500			8,000			30,500
Advertising		1,700			700			2,400
Store supplies used		950			250			1,200
Depreciation—Equipment		2,100			400			2,500
Total direct expenses		27,250			9,350			36,600
Allocated expenses
Rent expense		7,030			3,720			10,750
Utilities expense		2,900			2,200			5,100
Share of office department expenses		10,500			6,500			17,000
Total allocated expenses		20,430			12,420			32,850
Total expenses		47,680			21,770			69,450
Net income	$	39,020		$	21,930		$	60,950

Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $47,000 in sales with a 65% gross profit margin and will require the following direct expenses: sales salaries, $8,000; advertising, $800; store supplies, $300; and equipment depreciation, $500. 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 $7,900. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 5%. 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.)

Answer 1

Solution:

Williams Company
Forecasted Departmental Income statement
For the year ended Dec 31, 2018
Particulars	Clock	Mirror	Paintings	Combined
Sales	$178,500	$120,750	$47,000	$346,250
Cost of goods sold	$87,465	$74,865	$16,450	$178,780
Gross Profit	$91,035	$45,885	$30,550	$167,470
Direct expenses:
Sales Salaries	$22,500	$8,000	$8,000	$38,500
Advertising	$1,700	$700	$800	$3,200
Store supplies used	$998	$263	$300	$1,560
Depreciation of equipment	$2,100	$400	$500	$3,000
Total direct expenses	$27,298	$9,363	$9,600	$46,260
Allocated Expenses:
Rent expense	$5,624	$2,790	$2,336	$10,750
Utilities Expense	$2,668	$1,324	$1,108	$5,100
Share of office department expenses	$12,837	$8,684	$3,380	$24,900
Total allocated expenses	$21,129	$12,797	$6,824	$40,750
Total expenses	$48,426	$22,160	$16,424	$87,010
Net Income	$42,609	$23,725	$14,126	$80,460