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Problem 10-6A Analyzing possible elimination of a department LO P4 [The following information applies to the questions displayed below) 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 departmental income statements show the following. Dept. 200 $281,000 213) 000 68,000 Combined $725,000 481, eee 244,000 ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2019 Dept. 100 Sales $444,000 Cost of goods sold 268,000 Gross profit 176,000 Operating expenses Direct expenses Advertising 18,000 Store supplies used 4,500 Depreciation Store equipment 4,600 Total direct expenses 27 100 Allocated expenses Sales salaries 65,000 Rent expense 9,460 bad debts expense 9,900 office solary 15,608 Insurance expense 2.500 Miscellaneous office expenses 2,200 Total allocated expenses 1104,660 Total expenses 231.760 14,000 4,000 3,400 21,400 32,000 8.500 8,880 48,500 39,000 4710 7,700 10,400 1800 1,500 55,210 36.510 104,800 14,170 17600 26,080 4,30e 3700 169., 220 21827 Total expenses Net income (loss) 131,760 $ 44,240 86,510 $(18,510) 218,270 $ 25,730 In analyzing whether to eliminate Department 200, management considers the following: a. The company has one office worker who earns $500 per week, or $26,000 per year, and four salesclerks who each earns $500 per week, or $26,000 per year for each salesclerk. b. 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. c. 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 d. 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. e. Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies: 65% of the insurance expense allocated to it to cover its merchandise inventory, and 17% of the miscellaneous office expenses presently allocated to it Problem 10-6A Part 1 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 Eliminated Continuing Expenses Expenses Expenses Direct expenses Allocated expenses GU VILMO VERER ! Required information Direct expenses Allocated expenses Total expenses

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