Exercise 09-8 Departmental income statement and contribution to overhead LO P3 Jansen Company reports the following for its ski department for the year 2019. All of its costs are direct, except as noted. Sales $ 605,000 Cost of goods sold 425,000 Salaries 112,000 ($15,000 is indirect) Utilities 14,000 ($3,000 is indirect) Depreciation 42,000 ($10,000 is indirect) Office expenses 20,000 (all indirect) 1. Prepare a departmental income statement for 2019. 2. & 3. Prepare a departmental contribution to overhead report for 2019. Based on these two performance reports, should Jansen eliminate the ski department?

Answer and Explanation:

The Preparation of departmental contribution to overhead report is shown below:-

Departmental income statement for 2019

Sales $605,000

Less: Cost of goods sold ($425,000)

Less: Salaries ($112,000)

Less: Utilities ($14,000)

Less: Depreciation ($42,000)

Less: Office Expense ($20,000)

Net income (loss) ($8,000)

The Preparation of departmental contribution to overhead report is shown below:-

Sales $605,000

Less: Direct Expenses:

Cost of goods sold ($425,000)

Salaries ($97,000)

($112,000 - $15000)

Utilities ($11,000)

($14,000 - $3000)

Depreciation ($32,000)

($42,000 - $10,000)

Contribution to overhead $40,000