Chapter 24, Problem 8E

Requirement-1

To determine

To Prepare:

Departmental Income Statement

Answer to Problem 8E

Departmental Income Statement is as follows:

Jansen Company
Ski Department
Income Statement
For the year ended Dec. 31, 2019
Sales	$ 605,000
Less: Expenses
Cost of Goods Sold	$(425,000)
Salaries	$(112,000)
Utilities	$ (14,000)
Depreciation	$ (42,000)
Office Expenses	$ (20,000)
Net Income (Loss)	$ (8,000)

Explanation of Solution

Departmental Income Statement is prepared as follows;

Jansen Company
Ski Department
Income Statement
For the year ended Dec. 31, 2019
Sales	$ 605,000
Less: Expenses
Cost of Goods Sold	$(425,000)
Salaries	$(112,000)
Utilities	$ (14,000)
Depreciation	$ (42,000)
Office Expenses	$ (20,000)
Net Income (Loss)	$ (8,000)

Concept Introduction:

Contribution Margin Income Statement:

Contribution Margin Income Statement is a format of income statement used for cost volume profit analysis. This statement shows the Variable costs and fixed costs as separate items. It calculates the contribution margin and Net income as well.

Requirement-2

To determine

To Prepare:

The departmental contribution margin income statement

Answer to Problem 8E

The departmental contribution margin income statement is as follows:

Jansen Company
Ski Department
Contribution Income Statement
For the year ended Dec. 31, 2019
Sales	$ 605,000
Less: Direct Expenses:
Cost of Goods Sold	$(425,000)
Salaries	$ (97,000)
Utilities	$ (11,000)
Depreciation	$ (32,000)
Contribution	$ 40,000
Less: Indirect Expenses:
Salaries	$ (15,000)
Utilities	$ (3,000)
Depreciation	$ (10,000)
Office Expenses	$ (20,000)
Net Income (Loss)	$ (8,000)

Explanation of Solution

The departmental contribution margin income statement is prepared as follows:

Jansen Company
Ski Department
Contribution Income Statement
For the year ended Dec. 31, 2019
Sales	$ 605,000
Less: Direct Expenses:
Cost of Goods Sold	$(425,000)
Salaries (112000-15000)	$ (97,000)
Utilities (14000-3000)	$ (11,000)
Depreciation (42000-10000)	$ (32,000)
Contribution	$ 40,000
Less: Indirect Expenses:
Salaries	$ (15,000)
Utilities	$ (3,000)
Depreciation	$ (10,000)
Office Expenses	$ (20,000)
Net Income (Loss)	$ (8,000)

Concept Introduction:

Contribution Margin Income Statement:

Contribution Margin Income Statement is a format of income statement used for cost volume profit analysis. This statement shows the Variable costs and fixed costs as separate items. It calculates the contribution margin and Net income as well.

To determine

Requirement-3

If the department should be eliminated or not

Answer to Problem 8E

The department should not be eliminated

Explanation of Solution

Jansen Company
Ski Department
Contribution Income Statement
For the year ended Dec. 31, 2019
Sales	$ 605,000
Less: Direct Expenses:
Cost of Goods Sold	$(425,000)
Salaries (112000-15000)	$ (97,000)
Utilities (14000-3000)	$ (11,000)
Depreciation (42000-10000)	$ (32,000)
Contribution	$ 40,000
Less: Indirect Expenses:
Salaries	$ (15,000)
Utilities	$ (3,000)
Depreciation	$ (10,000)
Office Expenses	$ (20,000)
Net Income (Loss)	$ (8,000)

The ski department has positive contribution for the indirect expenses, hence it should not be eliminated.