Question

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 $103,300 $84,900 Cost of goods sold 45,375 47,750 Gross profit 57,925 37,150 Operating expenses Advertising expense 5,055 4,260 Depreciation expense-equipment 10,120 8,530 Salaries expense 19,400 17,500 Supplies expense 1,940 1,770 Rent expense 7,095 6,30 Utilities expense 2,955 2,610 Total operating expenses 46,565 40,700 Net income (loss) $ 11,360 $(3,550) 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

Answer 1

1	WHOLESALE GUITARS
	Income Statement Showing Departmental Contribution to Overhead
	For Year Ended December 31, 2015
		Acoustic Dept.	Electric Dept.	Combined
	Sales	$103,300	$84,900	$188,200
	Cost of goods sold	45,375	47,750	$93,125
	Gross profit	57,925	37,150	$95,075
	Direct expenses:
	Salaries expense	19,400	17,500	$36,900
	Depreciation expense—equipment	10,120	8,530	18,650
	Supplies expense	1,940	1,770	3,710
	Total direct expenses	31,460	27,800	59,260
	Departmental contributions to overhead	26,465	9,350	35,815
	Indirect expenses:
	Rent expense	7095	6030	13,125
	Utilities expense	2955	2610	5,565
	Advertising expense	5055	4260	9,315
	Total indirect expenses	15105	12900	28,005
	Net income	11,360	-3,550	7,810
2	No, Electric deparment should not be removed as it has departmental contribution of $9,350.