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	$	180,000		$	95,000		$	275,000
Cost of goods sold		88,200			58,900			147,100
Gross profit		91,800			36,100			127,900
Direct expenses
Sales salaries		22,000			7,700			29,700
Advertising		1,900			600			2,500
Store supplies used		1,000			500			1,500
Depreciation—Equipment		1,900			300			2,200
Total direct expenses		26,800			9,100			35,900
Allocated expenses
Rent expense		7,030			3,480			10,510
Utilities expense		2,300			1,400			3,700
Share of office department expenses		10,500			8,500			19,000
Total allocated expenses		19,830			13,380			33,210
Total expenses		46,630			22,480			69,110
Net income	$	45,170		$	13,620		$	58,790

Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $60,000 in sales with a 85% gross profit margin and will require the following direct expenses: sales salaries, $7,000; advertising, $1,000; store supplies, $700; and equipment depreciation, $800. 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 $7,600. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 9%. 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.)

INCOME STATEMENT FOR YEAR ENDED DEC 31, 2018

	Clock	Mirror	Paintings	Combined
Sales
COGS
Gross Profit
Direct Expenses
Sales Salaries
Advertising
Store Supplies used
Depreciation of equip
Total Direct expenses
Allocated expenses
Rent expense
Utilities expense
Share of office depart. expenses
Total allocated expenses
Total expenses
Net income

Answer 1