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Item 5

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, 2019 Acoustic Electric Sales $ 102,800 $ 84,500 Cost of goods sold 44,775 47,550 Gross profit 58,025 36,950 Operating expenses Advertising expense 5,035 4,270 Depreciation expense?Equipment 10,140 8,580 Salaries expense 19,900 17,800 Supplies expense 1,980 1,750 Rent expense 7,015 5,950 Utilities expense 3,005 2,640 Total operating expenses 47,075 40,990 Net income (loss) $ 10,950 $ (4,040 )

1. Produce 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?