Question

Below are departmental income statements for a guitar manufacturer. The manufacturer is considering ellminating its electric guitar department since it has a net loss. The company classifles advertising, rent, and utilities expenses as Indirect. WHOLESALE GUITARS Departmental Income Statements For Year Ended December 31, 2017 Acoustic Electric Sales $102,400 $84,200 Cost of goods sold 44,075 46,950 Gross profit 58,325 37,250 Operating expenses Advertising expense 5,065 4,320 Depreciation expense 10,120 equipment 8,530 Salaries expense 19,500 17,400 Supplies expense 1,940 1, 720 Rent expense 7,005 6,000 Utilities expense 3,015 2,570 Total operating expenses 46,645 40,540 Net income (los) $ 11,680 $ (3,290) 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 Electric Combined Dept. Dept. Direct expenses Total direct expenses Departmental contributions to overhead Indirect expenses Total Indirect expenses 2. Based on contribution to overhead, should the electric guitar department be eliminated? No Yes

Answer 1

1 WHOLESALE GUITARS Income Statement showing departmental contribution to overhead For the year Ended Dec 31,2017 Acoustic dept. Electric dept. Combined Sales $102,400 $84,200 $186,600 Cost of goods sold 44075 46950 91025 Gross profit (Sales - cogs) 58325 37250 95575 Direct expenses Depreciation expenses 10120 8530 18650 Salaries expenses 19500 17400 36900 Supplies expenses 1940 1720 3660 Total direct expenses 31560 276501 59210 Departmental contribution to overhead (Gross profit - Total direct expenses) 26765 9600 36365 Indirect expenses Advertising expenses 9385 Rent expenses 13005 Utilities expenses 5585 Total indirect expenses 27975 Net Income (Departmental contribution- Total indirect expenses) $8390 2 NO Based on departmental contribution to overhead, The elctric guitar department should not eliminated, as it contributes $9600 to cover the indirect expenses.

Advertising expenses = $5065+4320 = $9385 , Rent expenses = $7005+6000=$13005 and Utilities expenses=$3015+2570=$5585.

-------------------------------------------

"ANSWER IS SOLVED AS PER GIVEN QUESTION"
If you like the answer, kindly raise your THUMBS-UP button.
ALL THE BEST!!!!

If any doubts, drop your message in the comments box! Thank you!!!
#STAY SAFE