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 $102.600 $85,000 Cost of goods sold 43,775 47.450 Gross profit 58,825 37,550 Operating expenses Advertising expense 5.015 4,320 Depreciation expense-equipment 10.110 8.580 Salaries expense 19,400 17.400 Supplies expense 1.990 1,790 Rent expense 7,0455 ,970 Utilities expense 3,015 2.560 Total operating expenses 46,575 40,620 Net income (loss) $ 12.250 $ (3,070) 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 Indirect expenses $ 0 $ 0 $ Total indirect expenses 2. Based on contribution to overhead, should the electric guitar department be eliminated? No Yes
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