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	$	250,000		$	125,000		$	375,000
Cost of goods sold		122,500			77,500			200,000
Gross profit		127,500			47,500			175,000
Direct expenses
Sales salaries		22,500			7,600			30,100
Advertising		1,700			300			2,000
Store supplies used		650			300			950
Depreciation—Equipment		1,700			600			2,300
Total direct expenses		26,550			8,800			35,350
Allocated expenses
Rent expense		7,080			4,020			11,100
Utilities expense		3,000			2,100			5,100
Share of office department expenses		12,000			8,500			20,500
Total allocated expenses		22,080			14,620			36,700
Total expenses		48,630			23,420			72,050
Net income	$	78,870		$	24,080		$	102,950

Williams plans to open a third department in January 2020 that will sell paintings. Management predicts that the new department will generate $54,000 in sales with a 45% gross profit margin and will require the following direct expenses: sales salaries, $8,000; advertising, $700; store supplies, $500; and equipment depreciation, $400. 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 $8,300. 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 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 Advertising Store supplies used Depreciation of equipment Total direct expenses 0 0 0 0 Allocated expenses Rent expense Utilities expense Share of office dept. expenses Total allocated expenses 0 0 0 0 Total expenses 0 0 0 0 Net income $0 $0 $0 $0

Answer 1

	WILLIAMS COMPANY
Forecasted Department Income Statements
For the year Ended December 31,2018
			Clock	Mirror	Paintings	Combined
Sales			296400	142500	54,000	492900
cost of goods sold			145236	88350	29700	263286
Gross profit			151164	54150	24300	229614
Direct expenses
Sales salaries			22,000	8,400	8,000	38,400
Advertising			1,800	800	700	3,300
Store supplies used			535	321	500	1356
Depreciation of Equipment			2,300	300	400	3,000
total direct expenses			26,635	9,821	9,600	46,056
Allocated expenses
Rent expense			5664	3015	2421	11100
utilities expense			2602	1385	1112	5,100
share of office dept expense			17319	8326	3155	28800
total allocated expense			25585	12727	6689	45000
Total expense			52,220	22,548	16,289	91,056
Net income			98,944	31,602	8,011	138,558