Question

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.

WHOLESALE GUITARS
Departmental Income Statements
For Year Ended December 31, 2013
Acoustic Electric
Sales $ 111,500 $ 105,500
Cost of goods sold 55,675 66,750
Gross profit 55,825 38,750
Operating expenses
Advertising expense 8,075 6,250
Depreciation expense-equipment 10,150 9,000
Salaries expense 17,300 13,500
Supplies expense 2,030 1,700
Rent expense 6,105 5,950
Utilities expense 3,045 2,550
Total operating expenses 46,705 38,950
Net income (loss) $ 9,120 $ (200 )
Prepare a departmental contribution report that shows each department’s contribution to overhead.

Answer 1

Wholesale Guitars

WHOLESALE GUITARS

Departmental Contribution Income Statements

For Year Ended December 31, 2013

Acoustic Electric

Sales $ 111,500 $ 105,500

Cost of goods sold 55,675 66,750

Variable operating expenses 29,480 24,200

Total variable costs $85,155 $90,950

Contribution margin $26,345 $14,550

Total fixed (indirect) costs $17,225 $14,750

Net operating income (loss) $9,120 $(200)

Step-by-step explanation:

a) Data and Calculations:

WHOLESALE GUITARS

Departmental Income Statements

For Year Ended December 31, 2013

Acoustic Electric

Sales $ 111,500 $ 105,500

Cost of goods sold 55,675 66,750

Gross profit 55,825 38,750

Operating expenses

Advertising expense 8,075 6,250

Depreciation expense-equipment 10,150 9,000

Salaries expense 17,300 13,500

Supplies expense 2,030 1,700

Rent expense 6,105 5,950

Utilities expense 3,045 2,550

Total operating expenses 46,705 38,950

Net income (loss) $ 9,120 $ (200 )

Total operating expenses 46,705 38,950

Less fixed costs:

Advertising expense 8,075 6,250

Rent expense 6,105 5,950

Utilities expense 3,045 2,550

Total fixed (indirect) costs $17,225 $14,750

Variable operating expenses $29,480 $24,200