departmentalized Income Statement - ePL for Residential

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					Welcome to Financial Series #5
   Departmentalizing Above the Line
Your Hosts for Today’s Conference are:
      Gary Elekes in Nashville, Tennessee

        Gary Oetker in Plano, Texas
     Conference Objectives:
Ø   Review the benefits of departmentalizing
    the Income Statement.
Ø   Review paperwork flow required to get
    departmentalized Income Statement.

Ø   Review how to get departmentalized.
Agenda for Conference
qReview why a departmentalized Income Statement is
     needed to manage your company
qReview the structure of a departmentalized Income
qReview common market segments covered in a
     departmentalized Income Statement
qReview paperwork flow & accounting required to
     produce a departmentalized Income Statement
qReview how to departmentalize your company
         Income Statement Review

Direct Cost of
    Sales                 Total Company
                         Income Statement

  Gross Profit


Operating Profit
  Analyzing the Income Statement
                   Total Company Summary

    Where’s the Problem?
ØIs it in Residential Service?              There’s not enough
ØIs it in Residential Replacement?        information to identify
ØIs it in Residential Maintenance?            areas of concern
ØIs it in Residential New Construction?
ØIs it in Overhead expenses?
Above the Line:
ØSeparates Revenue By Major Market Segments
ØSeparates Cost of Sales By Major Market Segments
ØSeparates Gross Margin By Major Market Segments

Below the Line:
ØWill be covered in “Financial Series # 6 –
       Departmentalizing Overhead”
ØGenerally not needed on companies less than $3 million
       in revenue
Sample Departmentalized Income Statement
                  Sample (cont)
ØThe departmentalized income statement gives
   valuable information to evaluate performance in
   each market segment
ØManagement now can compare segment
   performance to industry Key Performance
   Indicators (benchmarking)
ØHere are a few problems with sample company:
       ØServiceGross Margin is too low
       ØResidential Replacement is too low

       ØOverhead is too high
      Why Departmentalize by
        Market Segment?
ØAllows detailed evaluation of each department
       or market segment
ØInsures 100% accountability

ØAllows you to evaluate each department head

ØAllows you to tie compensation to performance

ØAllows you to be aware of Business Mix
        Business Mix Sample

ØA Departmentalized Income Statement
   shows the company’s mix of business
   among all market segments.
ØThis is valuable information for
   management to evaluate & improve a
   company’s financial performance.
         Common Departments
ØResidential Replacement ØCommercial
ØResidential Service     Replacement
ØResidential Maintenance ØCommercial Service

ØResidential New Const.  ØCommercial Maintenance

ØIndoor Air Quality      ØCommercial New Const.

ØResidential Plumbing    ØCommercial Plumbing
                         ØCommercial Plumbing
ØResidential Plumbing
                            New Construction
   New Construction
Sample Department Numbering System
Departmentalization Paperwork
ØTracking Revenue Between Service &
      ØService Invoice

ØTracking Labor to Correct Department

      ØTime Tickets

ØTracking Materials Used to Correct Department

      ØPurchase Orders for parts/materials/equip.
      used directly on jobs/service calls
      ØMaterial Requisitions
                        Tracking Revenue
Technician identifies
correct department
for work performed
Tracking Labor

                   A Time Ticket
                 Assigns Technician
                  Time to Correct
Tracking Parts & Material

        Purchase Orders
       Material Requisitions
      Assign Parts to Correct
 Sample Installation Truck Usage Sheet
 Installer Identifies Job

  Installer Identifies Quantity
   of Each Item Used on Job

Administration Relieves
Inventory and Enters Cost of Sales
to Installation Department

This Form Can Also be Used to
Replenish Truck Inventory
          Sample Material Requisition
Sales person identifies equipment
& materials needed for job

 Warehouse person pulls material
 for job and notes quantify use

Administration Relieves
Inventory and Enters Cost of Sales
to Installation Department
   How do you get Departmental?
ØDecide  what departments are important enough to be
   tracked and measured.
ØMeet with your team and train them on why it’s
   important to be departmental.
ØStructure administrative / paper flow to support
   Departmental information flow.
ØRun a month concurrent test – see how it goes.

ØImplement accounting procedures at beginning of a
   new accounting period.
     Departmental Income Statement
ØDepartmentalize  your Income Statement to monitor
   performance in the market segments you serve
ØSet up Chart of Accounts to collect revenue and cost of sales
   for these departments
ØUse the Income Statement to decide if you need to change
   business mix.
ØUse the Income Statement to compare to industry financial
ØUse Income Statement to help analyze pricing.
       Departmental Income Statement
           Considerations (cont.)
ØGet Income Statement in a timely manner after month-end
ØMake sure managers understand Income Statement

ØHold managers accountable for their department
   Income Statement
ØMake sure technicians and installers are diligent at
   recording time and materials. This includes identifying
   correct department
ØMake sure administrative people are diligent in entering
   departmental information


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