Below are departmental income statements for a guitar manufacturer. The company classifies advertising, rent, and...
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Below are departmental income statements for a guitar manufacturer. The company classifies advertising, rent, and utilities as indirect expenses. The manufacturer is considering eliminating its Electric Guitar department because it shows a loss.
| Departmental Income Statements | ||
| For Year Ended December 31 | Acoustic | Electric |
|---|---|---|
| Sales | $ 102,300 | $ 83,400 |
| Cost of goods sold | 45,675 | 46,950 |
| Gross profit | 56,625 | 36,450 |
| Expenses | ||
| Advertising | 5,045 | 4,340 |
| DepreciationEquipment | 10,130 | 8,590 |
| Salaries | 19,400 | 17,400 |
| Supplies used | 1,930 | 1,770 |
| Rent | 7,085 | 5,970 |
| Utilities | 2,955 | 2,620 |
| Total expenses | 46,545 | 40,690 |
| Income (loss) | $ 10,080 | $ (4,240) |
1. Prepare a departmental contribution to overhead report. 2. Based on contribution to overhead, should the electric guitar department be eliminated?
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