Jorgensen Department Store has three departments Clothing Toys and Jewelry The

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Jorgensen Department Store has three departments: Clothing, Toys, and Jewelry. The most recent income statement, showing the total operating profit and departmental results is shown below:

	Total	Clothing	Toys	Hardware
Sales.........................................	$2,100,000	$1,000,000	$600,000	$500,000
Cost of goods sold.........................................	(1,260,000)	(500,000)	(400,000)	(360,000)
Gross profit.........................................	840,000	500,000	200,000	140,000
Direct expenses.........................................	(420,000)	(200,000)	(100,000)	(120,000)
Allocated expenses.........................................	(350,000)	(100,000)	(75,000)	(175,000)
Net income (loss).........................................	$ 70,000	$ 200,000	$ 25,000	$(155,000)

Based on this income statement, management is planning on eliminating the hardware department, as it is generating a net loss. If the hardware department is eliminated, the toy department will expand to fill the space, but sales will not change in total, nor will direct expenses. None of the allocated expenses will be avoided, but they will be reallocated. Clothing will be allocated $200,000 of these expenses, and Toys will be allocated $150,000 of these expenses. Prepare a new income statement for Jorgensen Department Store, showing the results if the Hardware Department is eliminated. Should the Hardware Department be eliminated?

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