Assignment:
Elegant Decor Company's management Is trylng to decide whether to ellminate Department 200, which has produced losses or low profits for several years. The company's 2015 departmental Income statements shows the following.
In analyzing whether to ellminate 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 sales
b. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk Is clerks who each earn $400 per week, or $20,800 per year for each salesclerk. charged to Department 200. The salary of the fourth clerk, who works half-time in both departments, Is dlvided evenly between the two departments.
c. Eliminating Department 200 would avold the sales salarles and the office salary currently allocated to It. However, management prefers another plan. Two salesclerks have Indicated that they will be qultting soon. Management belleves that their work can be done by the other two clerks If the one office worker works In sales half-tlme. 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 salarles and half would be reported as office salary.
d. The store bullding 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; 75% of the insurance expense allocated to it to cover its merchandise inventory: and 24% of the miscellaneous office expenses presently allocated to it.