Question

Williams Company began operations in January 2019 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, 2019
	Clock			Mirror			Combined
Sales	$	160,000		$	85,000		$	245,000
Cost of goods sold		78,400			52,700			131,100
Gross profit		81,600			32,300			113,900
Direct expenses
Sales salaries		20,500			7,900			28,400
Advertising		2,300			600			2,900
Store supplies used		700			600			1,300
Depreciation—Equipment		2,000			300			2,300
Total direct expenses		25,500			9,400			34,900
Allocated expenses
Rent expense		7,110			3,660			10,770
Utilities expense		2,600			1,600			4,200
Share of office department expenses		11,500			6,000			17,500
Total allocated expenses		21,210			11,260			32,470
Total expenses		46,710			20,660			67,370
Net income	$	34,890		$	11,640		$	46,530

Williams plans to open a third department in January 2020 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, $7,500; advertising, $1,100; store supplies, $300; 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 $7,500. Since the Painting department will bring new customers into the store, management expects sales in both the Clock and Mirror departments to increase by 12%. 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 2020 for the three operating (selling) departments and their combined totals. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)

WILLIAMS COMPANY Forecasted Departmental Income Statements For Year Ended December 31, 2020 Clock Mirror Paintings Combined Sales Cost of goods sold Gross profit 0 0 0 0 Direct expenses Sales salaries 20,500 7,900 Advertising 2,300 600 Store supplies used Depreciation of equipment 2,000 300 Total direct expenses 24,800 8,800 0 0 Allocated expenses Rent expense Utilities expense Share of office dept. expenses Total allocated expenses 0 0 0 0 Total expenses 24,800 8,800 0 0 Net income $(24,800) $(8,800) $0 $0

Answer 1

WILLIAMS COMPANY

Forecasted Departmental Income Statements

For Year Ended December 31, 2020

Clock Mirror Painting Combined sales 179,200($160,000*112%) $95,200($85,000*112%) $60,000 $334,400 cost of goods sold $87,808 ($179,200*49%) $59,024($95,200*62%) $9,000($60,000*15%) $155,832 Gross profit $91,392 $36,176 $51,000 $178,568 Direct expenses Sales salaries $20,500 $7,900 $7,500 $35,900 Advertising $2,300 $600 $1,100 $4,000 Store supplies used $700 $600 $300 $1,600 Depreciation of equipment $2,000 $300 $600 $2,900 Total direct expenses $25,500 $9,400 $9,500 $44,400 Allocated expenses Rent expense $5,688[$7,110-(7110*1/5)] $2,745[$3,660-(3,660*1/4)] $2,337(7110*1/5)+(3660*1/4) $10,770 Utilities expense $2,218($5,688/$10,770)*$4,200 $1,071($2,745/10,770)*$4200 $911 $4,200 Share of office dept. expenses $13,397($179,200/$334,400)*25,000 $7,117($95,200/334,400)*25000 $4,486($60,000/334,400)*25,000 $25,000($17,500+7,500) Total allocated expenses $21,303 $10,933 $7,734 $39,970 Total expenses $46,803 $20,333 [$9,400+10,933] $17,234 [$9,900+7,734] $84,370 Net income $44,589[$91,392-$46,803] $15,843[$36,176-$20,333] $33,766[$57,000-17,234] $94,198 [$178,568-$84,370]