Below are departmental income statements for a guitar manufacturer. The manufact

Question

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.

  
1. Prepare a departmental contribution report that shows each department’s contribution to overhead.

WHOLESALE GUITARS
Departmental Income Statements
For Year Ended December 31, 2017 Acoustic Electric Sales $ 103,100 $ 84,600 Cost of goods sold 43,975 46,850 Gross profit 59,125 37,750 Operating expenses Advertising expense 5,035 4,350 Depreciation expense—equipment 10,090 8,580 Salaries expense 19,900 17,100 Supplies expense 1,980 1,740 Rent expense 7,035 6,040 Utilities expense 3,035 2,570 Total operating expenses 47,075 40,380 Net income (loss) $ 12,050 $ (2,630 )

Explanation / Answer

INCOME STATEMENT SHOWING DEPARTMENTAL CONTRIBUTION TO OVERHEAD FOR YEAR ENDED DECEMBER 31,2017 AMOUNT IN $ AMOUNT IN $ AMOUNT IN $ ACOUSTIC DEPT ELECTRIC DEPT TOTAL SALES 103100 84600 187700 COST OF GOODS SOLD -43975 -46850 -90825 GROSS PROFIT 59125 37750 96875 DIRECT EXPENSES DEPRECIATION EXPENSE -EQUIPMENT 10090 8580 18670 SALARIES EXPENSE 19900 17100 37000 SUPPLIES EXPENSE 1980 1740 3720 TOTAL DIRECT EXPENSES 31970 27420 59390 DEPARTMENTAL CONTRIBUTION TO OVERHEADS 0 0 0 INDIRECT EXPENSES ADVERTISING EXPENSE 5035 4350 9385 RENT EXPENSE 7035 6040 13075 UTILITIES EXPENSE 3035 2570 5605 TOTAL INDIRECT EXPENSE 15105 12960 28065 NET INCOME 12050 -2630 9420

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