Copyright

Williams Company began operations in January 2015 with two operating (selling) departments and...

Question:

Williams Company began operations in January 2015 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, 2015

ClockMirrorCombined
Sales$260,000 $85,000 $345,000
Cost of goods sold127,400 52,700 180,100
Gross profit132,600 32,300 164,900
Direct expenses
Sales salaries20,500 7,600 28,100
Advertising1,900 700 2,600
Store supplies used900 400 1,300
Depreciation-Equipment1,700 500 2,200
Total direct expenses25,000 9,200 34,200
Allocated expenses
Rent expense7,060 3,900 10,960
Utilities expense2,500 1,800 4,300
Share of office department expenses12,000 10,000 22,000
Total allocated expenses21,560 15,700 37,260
Total expenses46,560 24,900 71,460
Net income$86,040 $7,400 $93,440

Williams plans to open a third department in January 2016 that will sell paintings. Management predicts that the new department will generate $59,000 in sales with a 85% gross profit margin and will require the following direct expenses: sales salaries, $8,500; advertising, $800; store supplies, $800; and equipment depreciation, $700. It will fit the new department into the current rented space by taking some square foot-age 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 $8,200. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 10%. 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 2016 for the three operating (selling) departments and their combined totals. (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.)

Income Statement:

Income statement is prepared to compute the net income for the period. It is calculated by reducing all the expenses from the revenues of the period. It helps in ascertaining the profitability of a particular segment or product.

Answer and Explanation: 1

Become a Study.com member to unlock this answer!

View this answer

Prepare income statement:

Income Statement Clock Mirror Paintings Total
Sales (260,000 X110%); (85,000X 110%); 59,000 286,000 93,500 59,000 438,50...

See full answer below.


Learn more about this topic:

Loading...
Product Lines: Definition & Explanation

from

Chapter 8 / Lesson 21
14K

Learn the definition of product line and see examples. Understand what a product line is, how a product line works, and the characteristics of a product line.


Related to this Question

Explore our homework questions and answers library