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Below are departmental income statements for a guitar manufacturer. The manufacturer is considering dropping its...

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Accounting

Below are departmental income statements for a guitar manufacturer. The manufacturer is considering dropping 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, 2013
Acoustic Electric
Sales $ 102,900 $ 83,200
Cost of goods sold 44,575 47,150
Gross profit 58,325 36,050
Operating expenses
Advertising expense 5,005 4,300
Depreciation expense-equipment 10,060 8,590
Salaries expense 19,900 17,600
Supplies expense 1,970 1,750
Rent expense 7,065 5,960
Utilities expense 2,965 2,630
Total operating expenses 46,965 40,830
Net income (loss) $ 11,360 $ (4,780 )

(1)

Prepare a departmental contribution report that shows each departments contribution to overhead.

(2) Based on contribution to overhead, should the electric guitar department be eliminated?
No
Yes

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