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Problem 24-3A Departmental income statements; forecasts LO P3 Williams Company began operations in January 2017 with...

Problem 24-3A Departmental income statements; forecasts LO P3

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 $ 105,000 $ 355,000
Cost of goods sold 122,500 65,100 187,600
Gross profit 127,500 39,900 167,400
Direct expenses
Sales salaries 21,000 6,900 27,900
Advertising 1,900 700 2,600
Store supplies used 950 600 1,550
Depreciation—Equipment 1,900 700 2,600
Total direct expenses 25,750 8,900 34,650
Allocated expenses
Rent expense 7,070 3,660 10,730
Utilities expense 2,700 2,000 4,700
Share of office department expenses 12,000 7,500 19,500
Total allocated expenses 21,770 13,160 34,930
Total expenses 47,520 22,060 69,580
Net income $ 79,980 $ 17,840 $ 97,820


Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $56,000 in sales with a 65% gross profit margin and will require the following direct expenses: sales salaries, $8,500; advertising, $1,100; store supplies, $1,000; and equipment depreciation, $900. 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 $7,500. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 11%. 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.

Solutions

Expert Solution

Solution:

Williams Company
Forecasted Departmental Income statement
For the year ended Dec 31, 2018
Particulars Clock Mirror Paintings Combined
Sales $277,500 $116,550 $56,000 $450,050
Cost of goods sold $135,975 $72,261 $19,600 $227,836
Gross Profit $141,525 $44,289 $36,400 $222,214
Direct expenses:
Sales Salaries $21,000 $6,900 $8,500 $36,400
Advertising $1,900 $700 $1,100 $3,700
Store supplies used $1,055 $666 $1,000 $2,721
Depreciation of equipment $1,900 $700 $900 $3,500
Total direct expenses $25,855 $8,966 $11,500 $46,321
Allocated Expenses:
Rent expense $5,656 $2,745 $2,329 $10,730
Utilities Expense $2,477 $1,202 $1,020 $4,700
Share of office department expenses $16,648 $6,992 $3,360 $27,000
Total allocated expenses $24,782 $10,940 $6,709 $42,430
Total expenses $50,636 $19,906 $18,209 $88,751
Net Income $90,889 $24,383 $18,191 $133,464


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