Below are departmental income statements for a guitar manufacturer. The manufacturer...
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Below are departmental income statements for a guitar manufacturer. The manufacturer is considering dropping its electric guitar department since it has a net loss. The company classifies advertising, rent, and utilities expenses as indirect.
WHOLESALE GUITARS Departmental Income Statements For Year Ended December 31, 2013
Acoustic
Electric
Sales
$
102,900
$
83,200
Cost of goods sold
44,575
47,150
Gross profit
58,325
36,050
Operating expenses
Advertising expense
5,005
4,300
Depreciation expense-equipment
10,060
8,590
Salaries expense
19,900
17,600
Supplies expense
1,970
1,750
Rent expense
7,065
5,960
Utilities expense
2,965
2,630
Total operating expenses
46,965
40,830
Net income (loss)
$
11,360
$
(4,780
)
(1)
Prepare a departmental contribution report that shows each departments contribution to overhead.
(2)
Based on contribution to overhead, should the electric guitar department be eliminated?
No
Yes
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