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Below are departmental income statements for a guitar manufacturer. The company classifies advertising, rent, and utilities as indirect expenses. The manufacturer is considering eliminating its
Below are departmental income statements for a guitar manufacturer. The company classifies advertising, rent, and utilities as indirect expenses. The manufacturer is considering eliminating its Electric Guitar department because it shows a loss.
Departmental Income Statements | ||
For Year Ended December 31 | Acoustic | Electric |
---|---|---|
Sales | $ 112,500 | $ 105,500 |
Cost of goods sold | 55,675 | 66,750 |
Gross profit | 56,825 | 38,750 |
Expenses | ||
Advertising | 8,075 | 6,250 |
DepreciationEquipment | 10,150 | 9,000 |
Salaries | 17,300 | 13,500 |
Supplies used | 2,030 | 1,700 |
Rent | 6,105 | 5,950 |
Utilities | 3,045 | 2,550 |
Total expenses | 46,705 | 38,950 |
Income (loss) | $ 10,120 | $ (200) |
1. Prepare a departmental contribution to overhead report. 2. Based on contribution to overhead, should the electric guitar department be eliminated?
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