Requirement-1
To Prepare:
The departmental contribution margin income statement
Requirement-1
![Check Mark](/static/check-mark.png)
Answer to Problem 7E
The departmental contribution margin income statement is as follows:
Contribution Margin Income Statement | ||
For the year ended Dec. 31, 2019 | ||
Acoustic | Electric | |
Sales | $ 112,500 | $ 105,500 |
Less: Variable Expenses: | ||
Cost of Goods Sold | $ (55,675) | $ (66,750) |
Salaries Expense | $ (17,300) | $ (13,500) |
Supplies Expense | $ (2,030) | $ (1,700) |
Contribution Margin | $ 37,495 | $ 23,550 |
Less: | ||
Advertising | $ (8,075) | $ (6,250) |
$ (10,150) | $ (9,000) | |
Rent | $ (6,105) | $ (5,950) |
Utilities | $ (3,045) | $ (2,550) |
Net Income (Loss) | $ 10,120 | $(200) |
Explanation of Solution
The departmental contribution margin income statement is prepared as follows:
Contribution Margin Income Statement | ||
For the year ended Dec. 31, 2019 | ||
Acoustic | Electric | |
Sales | $ 112,500 | $ 105,500 |
Less: Variable Expenses: | ||
Cost of Goods Sold | $ (55,675) | $ (66,750) |
Salaries Expense | $ (17,300) | $ (13,500) |
Supplies Expense | $ (2,030) | $ (1,700) |
Contribution Margin | $ 37,495 | $ 23,550 |
Less: Overheads (Fixed): | ||
Advertising | $ (8,075) | $ (6,250) |
Depreciation expense- Equipment | $ (10,150) | $ (9,000) |
Rent | $ (6,105) | $ (5,950) |
Utilities | $ (3,045) | $ (2,550) |
Net Income (Loss) | $ 10,120 | $(200) |
Concept Introduction:
Contribution Margin Income Statement:
Contribution Margin Income Statement is a format of income statement used for cost volume profit analysis. This statement shows the Variable costs and fixed costs as separate items. It calculates the contribution margin and Net income as well.
Requirement-2
If the Electric Division should be eliminated
Requirement-2
![Check Mark](/static/check-mark.png)
Answer to Problem 7E
Electric Division should not be eliminated.
Explanation of Solution
The departmental contribution margin income statement is prepared as follows:
Contribution Margin Income Statement | ||
For the year ended Dec. 31, 2019 | ||
Acoustic | Electric | |
Sales | $ 112,500 | $ 105,500 |
Less: Variable Expenses: | ||
Cost of Goods Sold | $ (55,675) | $ (66,750) |
Salaries Expense | $ (17,300) | $ (13,500) |
Supplies Expense | $ (2,030) | $ (1,700) |
Contribution Margin | $ 37,495 | $ 23,550 |
Less: Overheads (Fixed): | ||
Advertising | $ (8,075) | $ (6,250) |
Depreciation expense- Equipment | $ (10,150) | $ (9,000) |
Rent | $ (6,105) | $ (5,950) |
Utilities | $ (3,045) | $ (2,550) |
Net Income (Loss) | $ 10,120 | $(200) |
Based on the above contribution margin income statement, Electric division as positive contribution for the overhead, hence this division should not be eliminated.
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