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	$	250,000		$	85,000		$	335,000
Cost of goods sold		122,500			52,700			175,200
Gross profit		127,500			32,300			159,800
Direct expenses
Sales salaries		19,500			8,800			28,300
Advertising		2,100			900			3,000
Store supplies used		650			250			900
Depreciation—Equipment		2,300			700			3,000
Total direct expenses		24,550			10,650			35,200
Allocated expenses
Rent expense		7,040			3,540			10,580
Utilities expense		2,400			1,900			4,300
Share of office department expenses		10,500			6,500			17,000
Total allocated expenses		19,940			11,940			31,880
Total expenses		44,490			22,590			67,080
Net income	$	83,010		$	9,710		$	92,720

Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $46,000 in sales with a 85% gross profit margin and will require the following direct expenses: sales salaries, $7,000; advertising, $700; store supplies, $900; 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 $7,700. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 10%. 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	$275,000	$93,500	$46,000	$414,500
Cost of goods sold	$134,750	$57,970	$6,900	$199,620
Gross Profit	$140,250	$35,530	$39,100	$214,880
Direct expenses:
Sales Salaries	$19,500	$8,800	$7,000	$35,300
Advertising	$2,100	$900	$700	$3,700
Store supplies used	$715	$275	$900	$1,890
Depreciation of equipment	$2,300	$700	$700	$3,700
Total direct expenses	$24,615	$10,675	$9,300	$44,590
Allocated Expenses:
Rent expense	$5,632	$2,655	$2,293	$10,580
Utilities Expense	$2,289	$1,079	$932	$4,300
Share of office department expenses	$16,387	$5,572	$2,741	$24,700
Total allocated expenses	$24,308	$9,306	$5,966	$39,580
Total expenses	$48,923	$19,981	$15,266	$84,170
Net Income	$91,327	$15,549	$23,834	$130,710