Below are departmental income statements for the guitar manufacturer. The manufacturer is considering eliminating its electric guitar department since it has a net loss. The company classifies advertising, rent, and utility expenses as indirect.

DIEM GUITARS
Departmental Income Statements
For Year Ended December 31, 2019
	Acoustic	Electric
Sales	$103,000	$84,200
Cost of goods sold	43,775	47,650
Gross profit	59,225	36,550
Operating expenses:
Advertising expense	5,055	4,250
Depreciation expense-Equipment	10,140	8,590
Salaries expense	19,600	17,700
Supplies expense	1,980	1,750
Rent expense	7,085	6,030
Utilities expense	3,015	2,620
Total operating expenses	46,875	40,940
Net income (loss)	$12,350	($4,390)

1. Prepare 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?

Answer rating: 100% (QA)

To prepare a departmental contribution report that shows each departments contribution to overhead we need to calculate the contribution margin for ea... View the full answer