Jansen Company reports the following for its ski department for the year 2019. All of its costs are direct, except as noted. Sales $610,000
Cost of goods sold 435,000
Salaries 113,000 ($25,000 is indirect)
Utilities 15,600 ($5,700 is indirect)
Depreciation 54,400 ($17,400 is indirect)
Office expenses 29,600 (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?

1.

Jansen Company

Departmental Income Statement—Ski Department

For Year Ended 2019

Sales  610,000

Less : Cost of goods sold  435,000

Gross profit  175,000

Less; Expenses  

Salaries  113,000

Utilities  15,600

Depreciation  54,400

Office expenses  29,600 212,600

Operating loss  $37,600

2.

Jansen Company

Departmental Income Statement—Ski Department

For Year Ended 2019

Sales  610,000

Less : Cost of goods sold  435,000

Gross profit  175,000

Less; Direct Expenses  

Salaries  88,000 (113,000 - 25,000)

Utilities  9,900 (15,600 - 5,700)

Depreciation  37,000 (54,400 - 17,400)

Total Direct Expenses 134,900

Contribution to overhead $40,100

They should not eliminate the Ski Department because it would contribute $40,100 to overhead.