Below are departmental income statements for a guitar manufacturer. The manufacturer is considering eliminating its...
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Below are departmental income statements for a guitar manufacturer. The manufacturer is considering eliminating 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, 2017 Acoustic Electric Sales Cost of goods sold Gross profit Operating expenses $102,800 $84,700 44,875 47,650 57,92537,050 Advertising expense Depreciation expense-equipment Salaries expense Supplies expense Rent expense Utilities expense 4,280 8,550 19,400 17, 900 1,700 6,010 3,025 .570 46,625 41,010 $ 11,300 (3,960) 5,055 10,070 2,010 7,065 Total operating expenses Net income (loss) 1. Prepare a departmental contribution report that shows each department's contribution to overhead WHOLESALE GUITARS Income Statement Showing Departmental Contribution to Overhead For Year Ended December 31, 2017 Acoustic Dept. Electric Dept. Combined Direct expenses Total direct expenses Departmental contributions to overhead 0 Indirect expenses Total indirect expenses 0 0 2. Based on contribution to overhead, should the electric guitar department be eliminated? No Yes
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