question archive Below are departmental income statements for a guitar manufacturer
Below are departmental income statements for a guitar manufacturer
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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, 2019 Acoustic Electric Sales $101,700 $84,900 Cost of goods sold 43,675 47, 150 Gross profit 58,025 37,750 Operating expenses Advertising expense 5,065 4,250 Depreciation expense-Equipment 10,080 8,520 Salaries expense 19,600 17, 100 Supplies expense 1,990 1,750 Rent expense 7,065 6,010 Utilities expense 2,985 2,570 Total operating expenses 46,785 40,200 Net income (loss) $ 11, 240 $(2,450) 1. Prepare a departmental contribution report that shows each department's contribution to overhead. 2. Based on contribution to overhead, should the electric guitar department be eliminated? WHOLESALE GUITARS Income Statement Showing Departmental Contribution to Overhead For Year Ended December 31, 2019 Acoustic Dept. Electric Dept. Combined Direct expenses Total direct expenses Departmental contributions to overhead Indirect expenses Total indirect expenses
