Reference no: EM131256175

Chapter 24 – End-of-Chapter (EOC) Quiz

Complete this project as a separate word or pdf file

Submit as a Canvas Assignment at the course website

Clearly Print Your Name and Assignment Name at the top of each page

King Galleries of Scottsdale began operations in January of this year with two operating (selling) departments and one service (office) department. Its departmental income statements follow.

King Galleries

Departmental Income Statements

For the Year Ended December 31, 20xx

                               Paintings      Prints        Combined

Sales                     $130,000       $ 55,000       $185,000

Cost of Goods Sold             63,700       34,100       97,800

Gross Profit                   66,300       20,900       87,200

Direct Expenses

Sales Salaries                 20,000          7,000       27,000

Advertising                       1,200            500          1,700

Store Supplies Used                 900            400          1,300

Depreciation, Equipment           1,500            300          1,800

Total Direct Expenses          23,600          8,200       31,800

Allocated Expenses

Rent Expense                      7,020          3,780       10,800

Utilities Expense                 2,600          1,400          4,000

Share of Office Dept Exp       10,500          4,500       15,000

Total Allocated Expenses       20,120          9,680       29,800

Total Expenses                 43,720       17,880       61,600

Net Income                $ 22,580       $ 3,020       $ 25,600

The company plans to open a third department in January of next year that will sell Fine Art Photography (FAP). Management predicts the new department will generate $50,000 in Sales with a 55% Gross Profit Margin and will require the following Direct Expenses: Sales Salaries, $8,000; Advertising, $800; Store Supplies, $500; and Equip Depreciation, $200.

The company will fit the new department into the current rented space by taking some square footage from the other two departments. When opened, the new Custom Orders Department will fill one-fifth of the space presently used by the Paintings Department and one-fourth of the space used by the Prints Department. Management does not predict any increase in Utilities costs, which are allocated to the Departments in proportion to the occupied space (or rent expense).

The company allocated office department expenses to operating departments in proportion to their Sales. It expects the FAP Department to increase total office department expenses by $7,000.

Since the FAP Department will bring new customers into the store, management expects sales in the Residential and Commercial Departments to increase by 8%. No changes for those departments gross profit percents or for 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 the next calendar year for the three operating departments and their combined totals. (NOTE: Round percents to the nearest one-tenth and dollar amounts to the nearest whole dollar.)