Chapter 24 Departmental Accounting 2010 Prentice Hall Business
Chapter 24 Departmental Accounting © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater
Learning Objective 1 Preparing income statements focusing on gross profit by department © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1
Profit Center Unit or department that incurs costs and generates revenues Exists for the purpose of making money for a business © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1
Cost Center Unit or department that incurs costs but does not generate revenues Examples: ◦ Maintenance ◦ Housekeeping ◦ Accounting © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1
Problem 24 B-1 See Slide 6, which follows, for calculation of Cost of Goods Sold amount Cost of Goods Sold © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater
Problem 24 B-1 Merch. Inventory Jan. 1 Purch. Ret. & Allow. Merch. Inventory Dec. 31 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater
Learning Objective 2 Preparing income statements focusing on departmental net income © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2
Departmental Income from Operations Direct Expenses – operating expenses that can be traced and identified directly to separate departments Indirect Expenses – operating expenses that cannot be identified with a specific department, but with the company as a whole © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2
Problem 24 B-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2
Problem 24 B-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2
Problem 24 B-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2
Problem 24 B-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2
Learning Objective 3 Preparing income statements focusing on departmental contribution margin © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3
Contribution Margin A department’s net profit, used to cover indirect expenses Gross profit minus direct expenses Expenses not controlled by the department manager are not used in evaluating departmental performance © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3
Problem 24 B-4 Departmental Expenses Salaries Expense Direct Candy $750 Indirect $1, 125 Indirect = ($18, 000 / $40, 000) x $2, 500) Grocery $1, 500 $1, 375 Indirect = ($22, 000 / $40, 000) x $2, 500) © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3
Problem 24 B-4 Departmental Expenses Administrative Expense = Indirect Cost Candy: (20, 000/50, 000) x $7, 500 = $3, 000 Grocery: (30, 000/50, 000) x $7, 500 = $4, 500 Rent Expense = Indirect Cost Candy: (20, 000/50, 000) x $2, 000 = $800 Grocery: (30, 000/50, 000) x $2, 000 = $1, 200 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3
Problem 24 B-4 See Slide 18, which follows for calculation of Cost of Goods Sold amount © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3
Problem 24 B-4 Cost of Goods Sold CANDY Beginning inventory $1, 000 Add purchases 9, 250 Less discounts 250 Cost of goods available for sale 10, 000 Less ending inventory 2, 000 Cost of Goods Sold $8, 000 Cost of Goods Sold GROCERY Beginning inventory $1, 500 Add purchases 8, 450 Less discounts 450 Cost of goods available for sale 9, 500 Less ending inventory 2, 500 Cost of Goods Sold $7, 000 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3
Problem 24 B-4 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3
Expanding/Reducing a Department Determination involves researching financial reports Other Factors 1. The effect of loss of contribution margin 2. Effect one department has in drawing customers to other departments 3. Industry trends - do competitors have department? 4. Can suppliers meet increasing demand for items? LO-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater
Eliminating a Department Eliminating departments with a net loss is not always a wise idea Can cause greater loss in overall net income © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3
End of Chapter 24 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater
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