Question

Williams Company began operations in January 2019 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, 2019 Clock Mirror Combined Sales $ 230,00 $ 95,00 $ 325,000 Cost of goods sold 112,780 58,988 171,688 Gross profit 117,380 36,182 153,480 Direct expenses Sales salaries 28.000 8.00€ 28,000 Advertising 1,200 500 1.780 Store Supplies used 950 389 1,250 Depreciation-Equipment 2,100 2.680 Total direct expenses 24,25€ 9,388 33,55€ Allocated expenses Rent expense 7,110 3,600 10.710 Utilities expense 3.200 1,788 4,900 Share of office department expenses 11,500 6.000 17.500 Total allocated expenses 21,819 11,300 33. 110 Total expenses 46,860 20.600 66,66€ Net Income $ 71.240 $ 15,500 $ 86,748 See Williams plans to open a third department in January 2020 that will sell paintings. Management predicts that the new department will generate $50,000 in sales with a 45% gross profit margin and will require the following direct expenses: sales salaries, $7,000: advertising. $700: store supplies, $900, and equipment depreciation, $600. 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 utilitles costs, which are allocated to the departments in proportion to occupied space for 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 $8,100. Since the Painting department will bring new customers into the store. management expects sales in both the Clock and Mirror departments to Increase by 14%. 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. Required: Prepare departmental Income statements that show the company's predicted results of operations for calendar-year 2020 for the three operating (selling) departments and their combined totals. (Do not round Intermediate calculations. Round your final answers to nearest whole dollar amount.) Paintings Combined 01 WILLIAMS COMPANY Forecasted Departmental Income Statements For Year Ended December 31, 2020 Clock Mirror Sales Cost of goods sold Gross profit ol Direct expenses | Sales salaries Advertising Store supplies used | Depreciation of equipment Total direct expenses 0 0 Allocated expenses | Rent expense Utilities expense Share of office dept. expenses Total allocated expenses Total expenses Net income $ 0 $ 0 0 $ 0 0

Answer 1

Solution

Williams Company

Departmental income statement to show the company’s predicted results for the calendar year 2020 for the three operating departments and their combined totals:

Williams Company
Forecasted Departmental Income Statements
For the Year Ended December 31, 2020
	Clock	Mirror	Paintings	Combined
Sales	$262,200	$108,300	$50,000	$420,500
Cost of goods sold	$128,478	$67,146	$27,500	$223,124
Gross profit	$133,722	$41,154	$22,500	$197,376
Direct expenses:
Sales salaries	$20,000	$8,000	$7,000	$35,000
Advertising	$1,200	$500	$700	$2,400
Stores supplies used	$1,083	$342	$900	$2,325
Depreciation - Equipment	$2,100	$500	$600	$3,200
Total direct expenses	24,383	$9,342	$9,200	$42,925
Allocated Expenses:
Rent Expense	$5,688	$2,700	$2,322	$10,710
Utilities expenses	$2,602	$1,235	$1,063	$4,900
Share of office department expenses	$15,963	$6,593	$3,044	$25,600
Total allocated expenses	$24,253	$10,528	$6,429	$41,210
Total Expenses	$48,636	$19,870	$15,629	$84,135
Net Income	$85,086	$21,284	$6,871	$113,241

Computations:

1. Sales

Increase in sales for clock and mirror is by 14%

Clock – 230,000 + 14% x 230,000 = 262,200

Mirror – 95,000 + 14% x 95,000 = 108,300

2. Cost of goods sold and gross profit -

Gross profit remains same.

Cost of goods sold = sales – gross profit

Clock –

Gross profit percent – 117,300/230,000 = 51%

Cost of goods sold = 100 – 51 = 49%

Cost of goods = 262,200 x 49% = 128,478

Gross profit = 133,722

Mirror –

Gross profit percent = 36,100/95,000 = 38%

Cost of goods sold = 100 – 38 = 62%

Cost of goods sold = 62% x 108,300 = 67,146

Gross profit = 38% x 108,300 = 41,154

Paintings –

Gross profit margin = 45%

Cost of goods sold = 100 – 45 = 55%

Cost of goods sold = 50,000 x 55% = 27,500

Gross profit = 50,000 x 45% = 22,500

3. Allocated expenses –

Rent expense –

One fifth of clock to paintings –

Clock, original rent expense = 7,110

Less: one fifth to paintings = 7,110 x 1/5 = 1,422

Rent expense, clock = 5,688

One fourth of mirrors to paintings –

Mirror, original expense = 3,600

Less: one fourth to paintings = 3,600 x ¼ = 900

Rent expense, mirror = 2,700

Rent expense paintings =1,422 + 900 = 2,322

Utilities expense –

Allocated based on total rent expense

Utilities expense total = 4,900

Total rent expense – 10,710

Percent of utilities to rent = 4,900/10,710 = 0.4575

Utilities expense, clock = 5,688 x 0.4575 = 2,602

Mirror = 2,700 x 0.4575 = 1,235

Paintings = 2,322 x 0.4575 = 1,063

Office department expenses -

Increase by 8,100

Total office deparment expenses = 17,500 + 8,100 = 25,600

Allocated as a proportion to total sales

Proportion to combined sales = 25,600/420,500 = 0.06088

Clock = 262,200 x 0.06088 = 15,963

Mirror = 108,300 x 0.06088 = $6,593

Paintings = 50,000 x 0.06088 = $3,044