Departmental Accounting

Chapter 24

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

24 - 1

Learning Objective 1

Preparing income statements focusing on gross profit by departments.

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

24 - 2

Learning Unit 24-1 (Gross Profit by Departments)

Profit Centers

Cost Centers

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

24 - 3

Learning Unit 24-1 (Gross Profit by Departments)

Catlins Department Store Income Statement Year Ended December 31, 20x8 Net sales Cost of goods sold Gross profit Operating expenses Income before taxes Income tax expense Net income $841,300 467,500 $373,800 170,000 $203,800 89,520 $114,280
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2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 24-1 (Gross Profit by Departments)

Catlins Department Store Income Statement Showing Departmental Gross Profit Year Ended December 31, 20x8 Net sales Cost of goods sold Gross profit Operating expenses Income before taxes Income tax expense Net income

Childrens $565,500 269,900 $295,600

Adult $275,800 197,600 $ 78,200

Total $841,300 467,500 $373,800 170,000 $203,800 89,520 $114,280

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2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Objective 2

Preparing income statements focusing on departmental net income.

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

24 - 6

Learning Unit 24-2 (Departmental Net Income)

Catlins Department Store Income Statement Showing Departmental Income Before Tax Year Ended December 31, 2008 Net sales Cost of goods sold Gross profit Operating expenses Income before taxes Income tax expense Net income

Childrens $565,500 269,900 $295,600 114,500 $181,100

Adult $275,800 197,600 $ 78,200 55,500 $ 22,700

Total $841,300 467,500 $373,800 170,000 $203,800 89,520 $114,280

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2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 24-2 (Departmental Net Income)

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

24 - 8

Learning Unit 24-2 (Departmental Net Income)

What are some examples of direct expenses? Sales salaries Delivery expense Advertising expenses

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

24 - 9

Learning Unit 24-2 (Departmental Net Income)

What are some examples of indirect expenses?

Building expense
Advertising expenses Depreciation expense Administration expense
2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 24 - 10

Learning Unit 24-2 (Departmental Net Income)

Catlins Department Store Operating Expenses by Department Year Ended December 31, 2008

Childrens Sales salaries $ 25,000 Building expense 12,000 Delivery expense 6,000 Advertising expense 9,000 Depreciation expense 22,500 Administrative expense 40,000 Total $114,500

Adult $15,000 4,000 4,000 5,000 7,500 20,000 $55,500

Total $ 40,000 16,000 10,000 14,000 30,000 60,000 $170,000

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2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 24-2 (Departmental Net Income)

Sales salaries $40,000 (all direct)

Childrens Actual salaries $25,000

Adult Actual salaries $15,000

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

24 - 12

Learning Unit 24-2 (Departmental Net Income)

Building expense $16,000 (all indirect) Childrens 30,000 40,000 = 75% $16,000 75% = $12,000

Adult 10,000 40,000 = 25% $16,000 25% = $4,000

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

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Learning Unit 24-2 (Departmental Net Income)

Delivery expense $10,000 (all direct)

Childrens $10,000 60% = $6,000

Adult $10,000 40% = $4,000

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

24 - 14

Learning Unit 24-2 (Departmental Net Income)

Advertising expense $11,000 (direct)

Childrens Actual spent $7,000

Adult Actual spent $4,000

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

24 - 15

Learning Unit 24-2 (Departmental Net Income)

Advertising expense $3,000 (indirect)

Childrens $3,000 2/3 = $2,000

Adult $3,000 1/3 = $1,000

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

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Learning Unit 24-2 (Departmental Net Income)

Depreciation expense $30,000 (all indirect)

Childrens $30,000 3/4 = $22,500

Adult $30,000 1/4 = $7,500

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

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Learning Unit 24-2 (Departmental Net Income)

Administrative expense $60,000 (all indirect)

Childrens $60,000 2/3 = $40,000

Adult $60,000 1/3 = $20,000

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

24 - 18

Learning Unit 24-2 (Departmental Net Income)

Catlins Department Store Summary of Direct and Indirect Expenses Childrens Adult Expenses: Direct Indirect Direct Indirect Sales salaries $25,000 $15,000 Building $12,000 $ 4,000 Delivery 6,000 4,000 Advertising 7,000 2,000 4,000 1,000 Depreciation 22,500 7,500 Administrative 40,000 20,000 Totals $38,000 $76,500 $23,000 $32,500
2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 24 - 19

Learning Objective 3

Preparing income statements focusing on departmental contribution margin.

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

24 - 20

Learning Unit 24-3 (Contribution Margin)

Revenues

Direct costs

Contribution margin

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

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Learning Unit 24-3 (Contribution Margin)

Cost of goods sold is deducted first with the remaining direct expenses deducted next. The balance remaining is the contribution margin. Indirect expenses are deducted last to arrive at the net income figure.
2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 24 - 22

Learning Unit 24-3 (Contribution Margin)

Catlins Department Store Income Statement Showing Departmental Contribution Margin For Year Ended December 31, 20x8 Net sales Cost of goods sold Gross profit Direct expenses Contribution margin Indirect expenses Income before taxes Income tax expense Net income Childrens $565,500 269,900 $295,600 38,000 $257,600 Adult $275,800 197,600 $ 78,200 23,000 $ 55,200 Total $841,300 467,500 $373,800 61,000 $312,800 109,000 $203,800 89,520 $114,280
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2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

End of Chapter 24

2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

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