Exercise 22-7 Departmental contribution report LO P3

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.

WHOLESALE GUITARS Departmental Income Statements For Year Ended December 31, 2017
	Acoustic			Electric
Sales	$	101,500		$	84,400
Cost of goods sold		45,275			47,050
Gross profit		56,225			37,350
Operating expenses
Advertising expense		4,995			4,310
Depreciation expenseequipment		10,120			8,510
Salaries expense		19,300			17,600
Supplies expense		2,010			1,710
Rent expense		7,045			5,990
Utilities expense		3,035			2,570
Total operating expenses		46,505			40,690
Net income (loss)	$	9,720		$	(3,340	)

1. Prepare a departmental contribution report that shows each departments contribution to overhead.

WHOLESALE GUITARS
Income Statement Showing Departmental Contribution to Overhead
For Year Ended December 31, 2017
	Acoustic Dept.	Electric Dept.	Combined
Direct expenses
Total direct expenses
Departmental contributions to overhead
Indirect expenses
Total indirect expenses

Based on the contribution to overhead, should the electric guitar department be eliminated?