Clock Mirror Combined Sales $ 240,000 $ 125,000 $ 365,000 Cost of goods sold 117,600 77,500...


	Clock		Mirror		Combined
Sales	$	240,000	$	125,000	$	365,000
Cost of goods sold		117,600		77,500		195,100
Gross profit		122,400		47,500		169,900
Direct expenses
Sales salaries		22,000		8,400		30,400
Advertising		1,100		500		1,600
Store supplies used		500		500		1,000
Depreciation—Equipment		2,500		400		2,900
Total direct expenses		26,100		9,800		35,900
Allocated expenses
Rent expense		7,030		3,840		10,870
Utilities expense		2,800		1,900		4,700
Share of office department expenses		11,000		9,000		20,000
Total allocated expenses		20,830		14,740		35,570
Total expenses		46,930		24,540		71,470
Net income	$	75,470	$	22,960	$	98,430

Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $55,000 in sales with a 95% gross profit margin and will require the following direct expenses: sales salaries, $6,500; advertising, $800; store supplies, $800; and equipment depreciation, $600. 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 $7,100. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 14%. 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.)

Expert Solution

Departmental income statements:
				Clock	Mirror	Paintings	Combined
Sales				273600	142500	55000	471100
				(240000*114%)	(125000*114%)
Less: Cost of goods sold			(Note:1)	134064	88350	2750	225164
Gross profit				139536	54150	52250	245936
Direct expenses
Sales salaries				22000	8400	6500	36900
Advertising				1100	500	800	2400
Store supplies used				570	570	800
				(Note:2)	(Note:2)
Depreciation—Equipment				2500	400	600	3500
Total direct expenses				26170	9870	8700	44740
Allocated expenses
Rent expense			(Note:3)	5624	2880	2366	10870
Utilities expense			(Note:4)	2432	1245	1023	4700
Share of office department expenses			(Note:5)	15739	8197	3164	27100
Total allocated expense				23795	12322	6553	42670
Total expenses				49965	22192	15253	87410
Net income				89571	31958	36997	158526


Note:1
Clock
Gross profit margin=Gross profit/Sales=122400/240000=51%
Cost of goods sold=100%-Gross profit%=100%-51%=49% of sales
Cost of goods sold=273600*49%=$ 134064

Mirror:
Gross profit margin=Gross profit/Sales=47500/125000=38%
Cost of goods sold=100%-Gross profit%=100%-38%=62% of sales
Cost of goods sold=142500*62%=$ 88350

Paintings:
Gross profit margin=95%
Cost of goods sold=100%-Gross profit%=100%-95%=5% of sales
Cost of goods sold=55000*5%=$ 2750

Note:2
Clock
% of stores supplies used with respect to sales=500/240000=0.2083%
Revised sales=$ 273600
Revised cost of stores supplied=273600*0.2083%=$ 570

Mirror:
% of stores supplies used with respect to sales=500/125000=0.40%
Revised sales=$ 142500
Revised cost of stores supplied=142500*0.40%=$ 570

Note:3
Clock
1/5th has been taken by painting
Rent=7030*4/5=5624

Mirror:
1/4th has been taken by painting
Rent=3840*3/4=2880

Painting:
1/5 th from Clock		7030*1/5	1406
1/4 th from Mirror		3840*1/4	960
Total			2366

Note:4

Utility costs are allocated in propotion to rent expenses
Total utility cost=$ 4700

Clock	4700*(5624/10870)=$ 2432
Mirror	4700*(2880/10870)=$ 1245
Painting	4700*(2366/10870)=$ 1023

Note:5
Total office department expenses=20000+7100=$ 27100
Allocated in propotion to sales

Clock	27100*(273600/471100)=$ 15739
Mirror	27100*(142500/471100)=$ 8197
Painting	27100*(55000/471100)=$ 3164

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