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$101,800 $83,600 Cost of goods sold 45,175 46,750 Gross profit 56,625 36,850 Operating expenses Advertising expense 5,065 4,330 Depreciation expense—Equipment 10,130 8,550 Salaries expense 20,100 17,300 Supplies expense 1,950 1,770 Rent expense 7,085 6,020 Utilities expense 2,995 2,610 Total operating expenses 47,325 40,580 Net income (loss)$9,300 $(3,730) 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?

Departmental accounting is the accounting of the firm having more than one department. Total…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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	$	101,800		$	83,600
Cost of goods sold		45,175			46,750
Gross profit		56,625			36,850
Operating expenses
Advertising expense		5,065			4,330
Depreciation expense—Equipment		10,130			8,550
Salaries expense		20,100			17,300
Supplies expense		1,950			1,770
Rent expense		7,085			6,020
Utilities expense		2,995			2,610
Total operating expenses		47,325			40,580
Net income (loss)	$	9,300		$	(3,730	)

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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