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		$	125,000		$	315,000
Cost of goods sold		93,100			77,500			170,600
Gross profit		96,900			47,500			144,400
Direct expenses
Sales salaries		20,000			8,600			28,600
Advertising		2,000			300			2,300
Store supplies used		1,000			350			1,350
Depreciation—Equipment		1,600			200			1,800
Total direct expenses		24,600			9,450			34,050
Allocated expenses
Rent expense		7,080			3,960			11,040
Utilities expense		2,500			2,100			4,600
Share of office department expenses		10,000			6,500			16,500
Total allocated expenses		19,580			12,560			32,140
Total expenses		44,180			22,010			66,190
Net income	$	52,720		$	25,490		$	78,210

Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $47,000 in sales with a 45% gross profit margin and will require the following direct expenses: sales salaries, $8,000; advertising, $800; store supplies, $400; 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 $7,200. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 8%. 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.)

Answer 1

WILLIAMS COMPANY
Forecasted Departmental Income Statements
For the Year Ended Dec 31, 2018
	Clock	Mirror	Paintings	Comined
Sales	205,200	135,000	47,000	387,200
Cost of goods sold	100,548	83,700	25,850	210,098
Gross profit	104,652	51,300	21,150	177,102
Direct expenses
Sales salaries	20,000	8,600	8,000	36,600
Advertising	2,000	300	800	3,100
Store supplies used	1,080	378	400	1,858
Depreciation of equipment	1,600	200	800	2,600
Total direct expenses	24,680	9,478	10,000	44,158
Allocated expenses
Rent expense	5,664	2,970	2,406	11,040
Utilities expense	2,360	1,238	1,002	4,600
Share of office dept. expenses	12,560	8,263	2,877	23,700
Total allocated expenses	20,584	12,471	6,285	39,340
Total expenses	45,264	21,949	16,285	83,498
Net income	59,388	29,351	4,865	93,604
Utilities Expense:
Clock - $4,600 X (5,664 / 11,040)	2,360
Mirror - $4,600 x ($2,970 / $11,040)	1,238
Paintings - $4,600 X ($2406 / $11,040)	1,002
Share of Office Dept Expenses
Clock - $23,700 X ($205,200 / $387,200)	12,560
Mirror - $23,700 X ($135,000 / $387,200)	8,263
Paintings - $23,700 X ($47,000 / $387,200)	2,877