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.

Exercise 24-3 Departmental contribution report LO P3

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	)

(1)	Prepare a departmental contribution report that shows each department’s contribution to overhead.
	Explanation: (2)  Based on departmental contribution to overhead, the electric guitar department should not be eliminated, as it contributes $14,550 to covering indirect expenses.