Jansen Company reports the following for its ski department for the year 2017. All of its costs are direct, except as noted. Sales $ 615,000 Cost of goods sold 435,000 Salaries 111,000 ($25,200 is indirect) Utilities 16,300 ($5,300 is indirect) Depreciation 53,600 ($17,300 is indirect) Office expenses 26,600 (all indirect) 1. Prepare a departmental income statement for 2017. 2. & 3. Prepare a departmental contribution to overhead report for 2017. Based on these two performance reports, should Jansen eliminate the ski department?

Explanation:

a. The preparation of departmental contribution to overhead report for 2017 is shown below:-

Jansen Company

Departmental Income Statement—Ski Department

For Year Ended December 31, 2017

Sales                               $615,000

Cost of goods sold         $435,000

Gross profit                     $180,000

Direct expenses

Salaries                           $111,000

Utilities                            $16,300

Depreciation                   $53,600

Office expenses             $26,600

Operating loss                -$27,500

b. Departmental contribution to overhead = Gross profit of the department - All direct expenses of that department

Jansen Company

Departmental Contribution to Overhead—Ski Department

For Year Ended December 31, 2017

Sales                               $615,000

Cost of goods sold         $435,000

Gross profit                     $180,000

Direct expenses

Salaries                           $85,800

($111,000 - $25,200)

Utilities                              $11,000

($16,300 - $5,300)

Depreciation                     $36,300

($53,600 - $17,300)

Total direct expenses      $133,100

Contribution to overhead $166,690

3.  

No, Jansen should not eliminate the Ski Department

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