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
Departmental Income Statements
For Year Ended December 31, 2019
|Cost of goods sold||44,575||47,250|
|Total operating expenses||47,105||40,770|
|Net income (loss)||$||11,420||$||(3,820||)|
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?
Prepare a departmental contribution report that shows each department’s contribution to overhead.
Based on contribution to overhead, should the electric guitar department be eliminated?
|Income Statement Showing Departmental Contribution to Overhead|
|For Year Ended December 31, 2019|
|Acoustic Dept.||Electric Dept.||Combined|
|Cost of goods sold||44575||47250||91825|
|Total direct expenses||31990||27810||59800|
|Departmental contributions to overhead||26535||9140||35675|
|Total indirect expenses||28075|
|No, electric guitar department should not be eliminated.|
|Electric Guitar department contribution to overhead is $9140|
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