Below are departmental income statements for a guitar manufacturer. The company classifies advertising, rent, and utilities as indirectexpenses. The manufacturer is considering eliminating its Electric Guitar department because it shows a loss.Departmental Income StatementsFor Year Ended December 31SalesCost of goods soldGross profitExpensesAdvertisingDepreciation-EquipmentSalariesSupplies usedRentUtilitiesTotal expensesIncome (loss)Acoustic$ 101,60044,87556,7255,04510,11019,5001,9807,0053,02546,665$ 10,060Electric$ 83,80046,95036,8504,3208,51017,3001,7805,9802,57040,460$ (3,610)1. Prepare a departmental contribution to overhead report.2. Based on contribution to overhead, should the electric guitar department be eliminated? Required 1 Required 2Prepare a departmental contribution to overhead report.Departmental Contribution to OverheadFor Year Ended December 31Gross profitDirect expensesTotal direct expensesDepartmental contribution to overheadAcousticElectricCombined

Gross profit less direct production costs is the formula used to determine the departmental overhead…

expenses. The manufacturer is considering eliminating its Electric Guitar department becaus Departmental Income Statements For Year Ended December 31 Sales Cost of goods sold Gross profit Expenses Advertising Depreciation-Equipment Salaries Supplies used Acoustic $ 101,600 44,875 56,725 5,045 10,110 19,500 1,980 Electric $ 83,800 46,950 36,850 4,320 8,510 17,300 1,780

expenses. The manufacturer is considering eliminating its Electric Guitar department becaus Departmental Income Statements For Year Ended December 31 Sales Cost of goods sold Gross profit Expenses Advertising Depreciation-Equipment Salaries Supplies used Acoustic $ 101,600 44,875 56,725 5,045 10,110 19,500 1,980 Electric $ 83,800 46,950 36,850 4,320 8,510 17,300 1,780

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Elegant Decor Company’s management is trying to decide whether to eliminate Department 200, which has produced losses or low profits for several years. The company’s departmental income statements show the following. ELEGANT DECOR COMPANYDepartmental Income StatementsFor Year Ended December 31, 2019 Dept. 100 Dept. 200 Combined Sales $ 444,000 $ 281,000 $ 725,000 Cost of goods sold 261,000 210,000 471,000 Gross profit 183,000 71,000 254,000 Operating expenses Direct expenses Advertising 16,500 13,000 29,500 Store supplies used 5,500 4,900 10,400 Depreciation—Store equipment 4,200 2,800 7,000 Total direct expenses 26,200 20,700 46,900 Allocated expenses Sales salaries 65,000 39,000 104,000 Rent expense…
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