Exercise $22-7$

Departmental contribution to overhead

P$3$

Below are departmental income statements for a guitar manufacturer. The company classifies advertising, rent, and utilities as indirect expenses. The manufacturer is considering eliminating its Electric Guitar department because it shows a loss.

$\backslash$table$[[$Departmental Income Statements$],[$For Year Ended December $31,$Acoustic,Bectric$],[$Sales $.....................,$$$112,500,$$$105,500],[$Cost of goods sold $............,55,675,66,750],[$Gross profit..................,$56,825,38,750],[$Expenses$],[$Advertising $................,8,075,6,250],[$Depreciation$-$Equipment $.....,10,150,9,000],[$Salaries$.......................,17,300,13,500],[$Supplies used...............,$2,030,1,700],[$Rent$....................,6,105,5,950],[$Utilities $..................,3,045,2,550],[$Total expenses $...............,46,705,38,950],[$Income $($loss$)................,$$$10,120,$$ $(200)]]$

Prepare a departmental contribution to overhead report $($see Exhibit $22\mathrm{.}12).$

Based on contribution to overhead, should the Electric Guitar department be eliminated?