Williams Company began operations in January 2017 with two o

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 Sales Cost of goods sold Gross profit Direct expenses Clock Mirror Combined $ 140,000 85,000 $ 225,000 68,600 52,700 121,300 103,700 71,400 32,300 Sales salaries Advertising Store supplies used Depreciation-Equipment Total direct expenses 22,500 1,300 700 2,100 26,600 7,500 700 400 600 9,200 30,000 2,000 1,100 2,700 35,800 Allocated expenses Rent expense Utilities expense Share of office department expenses Total allocated expenses 7,110 2,600 10,650 4,500 23,500 38,650 74,450 $ 22,090$ 7,160 $ 29,250 3,540 1,900 13,00010,500 15,940 25,140 22,710 49,310 Total expenses Net income Williams plans to open a third department in January 2018 that will sell paintings. Management predicts that the new department will generate $55,000 in sales with a 65% gross profit margin and will require the following direct expenses: sales salaries, $8,000; advertising, $1,000; store supplies, $500; and equipment depreciation, $400. 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 $7,800. Since the painting department will bring new customers into the store management expects sales in both the clock and mirror departments to increase by 12%. 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

Solution

Solution:

Williams Company
Forecasted Departmental Income statement
For the year ended Dec 31, 2018
Particulars	Clock	Mirror	Paintings	Combined
Sales	$156,800	$95,200	$55,000	$307,000
Cost of goods sold	$76,832	$59,024	$19,250	$155,106
Gross Profit	$79,968	$36,176	$35,750	$151,894
Direct expenses:
Sales Salaries	$22,500	$7,500	$8,000	$38,000
Advertising	$1,300	$700	$1,000	$3,000
Store supplies used	$784	$448	$500	$1,732
Depreciation of equipment	$2,100	$600	$400	$3,100
Total direct expenses	$26,684	$9,248	$9,900	$45,832
Allocated Expenses:
Rent expense	$5,688	$2,655	$2,307	$10,650
Utilities Expense	$2,403	$1,122	$975	$4,500
Share of office department expenses	$15,986	$9,706	$5,607	$31,300
Total allocated expenses	$24,078	$13,483	$8,889	$46,450
Total expenses	$50,762	$22,731	$18,789	$92,282
Net Income	$29,206	$13,445	$16,961	$59,612