Professional Documents
Culture Documents
Departmental Accounting
Primary
goals
Departmental Accounting
Departmental Accounting
Departments are
established for
specialized functions.
Information for
Departmental Evaluation
The accounting system provides information
about resources used and outputs achieved.
Managers use this information to:
Control operations
Appraise performance
Allocate resources.
Plan strategy
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2007
C1
Information for
Departmental
The type of accounting information Evaluation
provided depends on whether
the department is a . . .
Cost Profit
center center
Information for
Departmental Evaluation
Customer
Quality
Satisfaction
Information must
support these
four pillars of
any successful
business
Cost
Profitability
Effectiveness
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2007
Departmental Expense Allocation
C2
Indirect expenses
benefit more than one
department and are
allocated among
departments benefited.
Expense Allocation
Classic Jewelry pays its janitorial service $300 per month to
clean its store. Management allocates this cost to its three
departments according to the floor space each occupies.
Expense
Classic Jewelry pays its janitorialAllocation
service $300 per month to clean its
store. Management allocates this cost to its three departments
according to the floor space each occupies.
Expense Allocation
Classic Jewelry pays its janitorial service $300 per month to clean
its store. Management allocates this cost to its three departments
according to the floor space each occupies.
Service Service
Dept. One Dept. Two
Operating Operating
Dept. One Dept. Two
Service Service
Dept. One Dept. Two
Operating Operating
Dept. One Dept. Two
Service Service
Dept. One Dept. Two
Allocation Allocation
Operating Operating
Dept. One Dept. Two
Departmental contribution . . .
Is used to evaluate departmental performance.
Is not a function of arbitrary allocations of indirect expenses.
Departmental contributions
to indirect expenses
(overhead) are emphasized.
Responsibility Accounting
An accounting system that
provides information . . .
President
Store Manager
Department Manager
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2007
C4
Responsibility Accounting
Performance Reports
Amount of detail varies according
to level in organization.
Responsibility Accounting
Performance Reports
To be of maximum benefit, responsibility reports should . .
.
Be timely.
Be issued regularly.
Be understandable.
Compare budgeted
and actual amounts.
Joint Costs
A single cost incurred in producing or purchasing two or more
different products.
Similar to an indirect expense
since it is shared among more
than one cost object.
Product Three
Sales value = $120,000