24 - 1 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Departmental
Accounting
Chapter 24
24 - 2 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Preparing income statements
focusing on gross profit
by departments.
Learning Objective 1
24 - 3 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 24-1
(Gross Profit by Departments)
Cost Centers
Profit Centers
24 - 4 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Catlins Department Store
Income Statement
Year Ended December 31, 20x8
Net sales $841,300
Cost of goods sold 467,500
Gross profit $373,800
Operating expenses 170,000
Income before taxes $203,800
Income tax expense 89,520
Net income $114,280
Learning Unit 24-1
(Gross Profit by Departments)
24 - 5 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Catlins Department Store
Income Statement Showing Departmental Gross Profit
Year Ended December 31, 20x8
Childrens Adult Total
Net sales $565,500 $275,800 $841,300
Cost of goods sold 269,900 197,600 467,500
Gross profit $295,600 $ 78,200 $373,800
Operating expenses 170,000
Income before taxes $203,800
Income tax expense 89,520
Net income $114,280
Learning Unit 24-1
(Gross Profit by Departments)
24 - 6 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Preparing income statements
focusing on departmental
net income.
Learning Objective 2
24 - 7 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 24-2
(Departmental Net Income)
Catlins Department Store
Income Statement Showing Departmental Income Before Tax
Year Ended December 31, 2008
Childrens Adult Total
Net sales $565,500 $275,800 $841,300
Cost of goods sold 269,900 197,600 467,500
Gross profit $295,600 $ 78,200 $373,800
Operating expenses 114,500 55,500 170,000
Income before taxes $181,100 $ 22,700 $203,800
Income tax expense 89,520
Net income $114,280
24 - 8 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 24-2
(Departmental Net Income)
24 - 9 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 24-2
(Departmental Net Income)
Sales salaries
What are some examples
of direct expenses?
Delivery expense
Advertising expenses
24 - 10 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 24-2
(Departmental Net Income)
Building expense
What are some examples
of indirect expenses?
Advertising expenses
Depreciation expense
Administration expense
24 - 11 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 24-2
(Departmental Net Income)
Catlins Department Store
Operating Expenses by Department
Year Ended December 31, 2008
Childrens Adult Total
Sales salaries $ 25,000 $15,000 $ 40,000
Building expense 12,000 4,000 16,000
Delivery expense 6,000 4,000 10,000
Advertising expense 9,000 5,000 14,000
Depreciation expense 22,500 7,500 30,000
Administrative expense 40,000 20,000 60,000
Total $114,500 $55,500 $170,000
24 - 12 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
24 - 13 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
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
24 - 14 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
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
24 - 15 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 24-2
(Departmental Net Income)
Advertising expense $11,000
(direct)
Childrens
Actual spent
$7,000
Adult
Actual spent
$4,000
24 - 16 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
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
24 - 17 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
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
24 - 18 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
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
24 - 19 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 24-2
(Departmental Net Income)
Expenses:
Sales salaries
Building
Delivery
Advertising
Depreciation
Administrative
Totals
Direct
$25,000

6,000
7,000


$38,000
Indirect

$12,000

2,000
22,500
40,000
$76,500
Direct
$15,000

4,000
4,000


$23,000
Indirect

$ 4,000

1,000
7,500
20,000
$32,500
Catlins Department Store
Summary of Direct and Indirect Expenses
Childrens Adult
24 - 20 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Preparing income statements
focusing on departmental
contribution margin.
Learning Objective 3
24 - 21 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 24-3
(Contribution Margin)
Revenues

Direct
costs
=
Contribution
margin
24 - 22 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 24-3
(Contribution Margin)
The balance remaining is
the contribution margin.
Cost of goods sold is deducted
first with the remaining direct
expenses deducted next.
Indirect expenses are deducted last
to arrive at the net income figure.
24 - 23 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Catlins Department Store
Income Statement Showing Departmental Contribution Margin
For Year Ended December 31, 20x8
Childrens Adult Total
Net sales $565,500 $275,800 $841,300
Cost of goods sold 269,900 197,600 467,500
Gross profit $295,600 $ 78,200 $373,800
Direct expenses 38,000 23,000 61,000
Contribution margin $257,600 $ 55,200 $312,800
Indirect expenses 109,000
Income before taxes $203,800
Income tax expense 89,520
Net income $114,280
Learning Unit 24-3
(Contribution Margin)
24 - 24 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
End of Chapter 24