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 $ 190,000 $ 85,000 $ 275,000 Cost of goods sold 93,100 52,700 145,800 Gross profit 96,900 32,300 129,200 Direct expenses Sales salaries 21,500 8,700 30,200 Advertising 1,600 700 2,300 Store supplies used 500 650 1,150 Depreciation—Equipment 2,400 800 3,200 Total direct expenses 26,000 10,850 36,850 Allocated expenses Rent expense 7,040 3,780 10,820 Utilities expense 3,200 2,300 5,500 Share of office department expenses 12,000 6,500 18,500 Total allocated expenses 22,240 12,580 34,820 Total expenses 48,240 23,430 71,670 Net income $ 48,660 $ 8,870 $ 57,530 Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $52,000 in sales with a 75% gross profit margin and will require the following direct expenses: sales salaries, $6,500; advertising, $1,000; store supplies, $1,000; and equipment depreciation, $700. 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 $7,400. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 7%. 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.)
	WILLIAMS COMPANY Forecasted Departmental Income Statements For Year Ended December 31, 2018 Clock Mirror Paintings Combined Sales $203,300 $90,950 $52,000 $346,250 Cost of goods sold 99,617 56,389 13,000 169,006 Gross profit 103,683 34,561 39,000 177,244 Direct expenses Sales salaries 21,500 8,700 6,500 36,700 Advertising 1,600 700 1,000 3,300 Store supplies used 535 696 1,000 2,231 Depreciation of equipment 2,400 800 700 3,900 Total direct expenses 26,035 10,896 9,200 46,131 Allocated expenses Rent expense 5,632 2,835 2,353 10,820 Utilities expense ??? ??? 1,215 5,500 Share of office dept. expenses ??? ??? ??? ??? Total allocated expenses 5,632 2,835 3,568 16,320 Total expenses 31,667 13,731 12,768 62,451 Net income $72,016 $20,830 $26,232 $114,793

Answer 1

WILLIAMS COMPANY
Forecasted Departmental Income Statements
For the Year Ended Dec 31, 2018
	Clock	Mirror	Paintings	Comined
Sales	203,300.00	90,950.00	52,000.00	346,250.00
Cost of goods sold	99,617.00	56,389.00	13,000.00	169,006.00
Gross profit	103,683.00	34,561.00	39,000.00	177,244.00
Direct expenses
Sales salaries	21,500.00	8,700.00	6,500.00	36,700.00
Advertising	1,600.00	700.00	1,000.00	3,300.00
Store supplies used	535.00	696.00	1,000.00	2,231.00
Depreciation of equipment	2,400.00	800.00	700.00	3,900.00
Total direct expenses	26,035.00	10,896.00	9,200.00	46,131.00
Allocated expenses
Rent expense	5,632.00	2,835.00	2,353.00	10,820.00
Utilities expense	2,560.00	1,725.00	1,215.00	5,500.00
Share of office dept. expenses	15,207.00	6,803.00	3,890.00	25,900.00
Total allocated expenses	23,399.00	11,363.00	7,458.00	42,220.00
Total expenses	49,434.00	22,259.00	16,658.00	88,351.00
Net income	54,249.00	12,302.00	22,342.00	88,893.00
Utilities Expense:
Clock - $3,200 X 4/5	2,560.00
Mirror - $2,300 X 3/4	1,725.00
Paintings - $3,200 X 1/5 + $2,300 X 1/4	1,215.00
Share of Office Dept Expenses
Clock - $25,900 X ($203,300 / $346,250)	15,207.00
Mirror - $25,900 X ($90,950 / $346,250)	6,803.00
Paintings - $25,900 X ($52,000 / $346,250)	3,890.00