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Elegant Decor Company’s management is trying to decide whether to eliminate Department 200, which has produced losses or low profits for several years. The company’s 2017 departmental income statements shows the following.

ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017
	Dept. 100					Dept. 200					Combined
Sales		$	437,000				$	285,000				$	722,000
Cost of goods sold			263,000					210,000					473,000
Gross profit			174,000					75,000					249,000
Operating expenses
Direct expenses
Advertising			18,000					14,500					32,500
Store supplies used			4,500					4,200					8,700
Depreciation—Store equipment			4,200					2,700					6,900
Total direct expenses			26,700					21,400					48,100
Allocated expenses
Sales salaries			78,000					46,800					124,800
Rent expense			9,440					4,740					14,180
Bad debts expense			9,500					7,300					16,800
Office salary			18,720					12,480					31,200
Insurance expense			1,700					1,000					2,700
Miscellaneous office expenses			2,200					1,500					3,700
Total allocated expenses			119,560					73,820					193,380
Total expenses			146,260					95,220					241,480
Net income (loss)		$	27,740				$	(20,220	)			$	7,520

In analyzing whether to eliminate Department 200, management considers the following:

1. The company has one office worker who earns $600 per week, or $31,200 per year, and four sales clerks who each earn $600 per week, or $31,200 per year for each salesclerk.
2. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged to Department 200. The salary of the fourth clerk, who works half-time in both departments, is divided evenly between the two departments.
3. Eliminating Department 200 would avoid the sales salaries and the office salary currently allocated to it. However, management prefers another plan. Two salesclerks have indicated that they will be quitting soon. Management believes that their work can be done by the other two clerks if the one office worker works in sales half-time. Eliminating Department 200 will allow this shift of duties. If this change is implemented, half the office worker’s salary would be reported as sales salaries and half would be reported as office salary.
4. The store building is rented under a long-term lease that cannot be changed. Therefore, Department 100 will use the space and equipment currently used by Department 200.
5. Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies; 72% of the insurance expense allocated to it to cover its merchandise inventory; and 24% of the miscellaneous office expenses presently allocated to it.

Required:
1. Complete the following report showing total expenses, expenses that would be eliminated by closing Department 200 and the expenses that would continue. The statement should reflect the reassignment of the office worker to one-half time as salesclerk.

	ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Expenses Eliminated Expenses Continuing Expenses Direct expenses Allocated expenses Total expenses

Answer 1