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 GUITARSDepartmental Income StatementsFor Year Ended December 31, 2019 Acoustic Electric Sales$102,600 $84,200 Cost of goods sold 45,375 47,650 Gross profit 57,225 36,550 Operating expenses Advertising expense 5,055 4,280 Depreciation expense—Equipment 10,110 8,500 Salaries expense 19,500 17,800 Supplies expense 1,940 1,760 Rent expense 7,065 6,030 Utilities expense 2,945 2,600 Total operating expenses 46,615 40,970 Net income (loss)$10,610 $(4,420) 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?

Answered: Below are departmental income…

FINANCIAL ACCOUNTING

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Chapter1: Financial Statements And Business Decisions

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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	$	102,600		$	84,200
Cost of goods sold		45,375			47,650
Gross profit		57,225			36,550
Operating expenses
Advertising expense		5,055			4,280
Depreciation expense—Equipment		10,110			8,500
Salaries expense		19,500			17,800
Supplies expense		1,940			1,760
Rent expense		7,065			6,030
Utilities expense		2,945			2,600
Total operating expenses		46,615			40,970
Net income (loss)	$	10,610		$	(4,420	)

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?

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