0 Required information The following information applies to

0 Required information 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 2017 departmental income statements show the following. ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expensen t. 100 Dept. 200 Combined 453,000 $292,000 $745,000 267,000 214,000 481,000 8,000264,000 186,000 Direct expensers 32,000 7,400 18,000 14,000 Advertising Store supplies used Depreciation-Store equipment Total direct expenses ,000 ,400 26,800- ,3,200 21,100 8,500 47,900 Allocated expenses 46,800 124,800 4,790 14,210 7,500 17,200 18,720 12,480 31,200 3,000 ,300 4,470194,710 95,570 242,610 78,000 9,420 9,700 Sales salaries Rent expense Bad debts expense Office salary Insurance expense Miscellaneous office expenses Total allocated expenses 1,900 2,500 120,240 147,040 1,100 1,800 Total expenses s 38,960 $(17,570) 21,390 Net income (loss)

Solution

Reconciliation of Combined Income with Forecasted Income :-

Combined Net Income

21390

(-) Avoidable Sales

292000

(+) Avoidable Direct & Allocated Exp (Working Note 1)

302455

Forecasted Net Income

31845

Working Note 1:- (Avoidable Direct & Allocated Exp)

COGS

214000

Advertising

14000

Store Supplies

3400

Avoidable cost of office salary & Sales Salary (working note 2)

62400

Bad Debts

7500

Insurance Exp (1100 * 69%)

759

Miscellaneous Exp (1800 * 22%)

396

Avoidable Allocated Exp

302455

Working Note 2:- (Avoidable cost of office salary & Sales Salary):-

Plan 1

Avoid Cost allocated to Dept 200

Plan 2

Quit two Sales clerk & Shift of Duties

Avoidable cost of office salary & Sales Salary

(46800 + 12480)

=59280

(31200 * 2)

=62400

Plan 2 is beneficial i.e. Quit two Sales clerk & Shift of Duties

Combined Net Income	21390
(-) Avoidable Sales	292000
(+) Avoidable Direct & Allocated Exp (Working Note 1)	302455
Forecasted Net Income	31845