Below are departmental income statements for a guitar manufacturer. The manufacturer is considering dropping 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. (2) Based on contribution to overhead, should the electric guitar department be eliminated?
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BEST GUITAR Departmental Income Statements For Year Ended December 31,2011 |
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Acoustic |
Electric |
|
Sales |
$101,500 |
$85,000 |
|
Cost of goods sold |
45,675 |
46,750 |
|
Gross profit |
55,825 |
38,250 |
|
Operating expenses |
|
|
|
Advertising expense |
5,075 |
4,250 |
|
Depreciation expense equipment |
10,150 |
8,500 |
|
Salaries expense |
20,300 |
17,000 |
|
Supplies expense |
2,030 |
1,700 |
|
Rent expense |
7,105 |
5,950 |
|
Utilities expense |
3,045 |
2,550 |
|
Total operating expenses |
47,705 |
39,950 |
|
Net income (loss) |
$ 8,120 |
($1,700) |