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 $140,000 $125,000 $265,000 Cost of goods sold 68,600 77,500 146, 100 Gross profit 71,400 47,500 118,900 Direct expenses Sales salaries 20,500 8,600 29,100 Advertising 1,300 900 2,200 Store supplies used 600 1,000 Depreciation-Equipment 1,400 400 1,800 Total direct expenses 23,800 10,300 34,100 Allocated expenses Rent expense 7,050 3,600 10,650 Utilities expense 2,600 1,400 4,000 Share of office department 10,000 5,500 15,500 expenses Total allocated expenses 19,650 10,500 30,150 Total expenses 43,450 20,800 64,250 Net income $ 27,950 $ 26,700 $ 54,650 Williams plans to open a third department In January 2020 that will sell paintings. Management predicts that the new department will generate $59,000 in sales with a 65% gross profit margin and will require the following direct expenses: sales salarles, $7,500, advertising, $800, store supplies, $1,000, and equipment depreciation, $1,000. 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 occupled 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 $7,300. Since the Painting department will bring new customers into the store, management expects sales in both the Clock and Mirror departments to Increase by 9%. 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.

Answer 1

WILLIAMS COMPANY Forecasted Departmental Income Statements For Year Ended December 31, 2019 Clock Mirror Paintings Combined Sales 152600 136250 59000 347850 Cost of goods sold 74774 84475 20650 179899 Gross profit 77826 51775 38350 167951 Direct expenses Sales salaries 20500 8600 7500 36600 Advertising 1300 900 800 3000 Store supplies used 654 436 1000 2090 Depreciation of equipment 1400 400 1000 2800 Total direct expenses 23854 10336 10300 44490 Allocated expenses Rent expense 5640 2700 2310 10650 Utilities expense 2080 1120 800 4000 Share of office dept. expenses 10002 8931 3867 22800 Total allocated expenses 17722 12751 6977 37450 Total expenses 41576 23087 17277 81940 Net income 36250 28688 21073 86011

140000*1.09 = 152600

125000*1.09 =136250

68600*1.09 = 74774

77500*1.09 =84475

59000*65% = 38350

59000-38350 =20650

600*1.09 = 654

400*1.09 = 436

15500+7300 =22800

7050-(7050/5) = 5640

3600-(3600/4) =2700

10650 -5640-2700 =2310

2600-(2600/5) =2080

1400-(1400/5) =1120

4000-2080-1120 = 800

22800*152600/347850 = 10002

22800*136250/347850 = 8931

22800*59000/347850 = 3867