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					CHAPTER TWENTY-SEVEN

   DEPARTMENTAL
    ACCOUNTING
        DEPARTMENTAL
         ACCOUNTING
 Provides separate information about the
  revenues and expenses of each department
 Useful to management for three purposes:
  o Planning
  o Control
  o Performance evaluation
 Generally for internal financial statement
  users
  o Often only the income statement is prepared
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis         Total

Net sales                           $1,075,000 $640,300 $1,715,300
Cost of goods sold                     545,280 420,900     966,180
Gross profit                        $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense                                $  80,250
 Truck drivers wages expense
             Sales, Cost of Goods Sold and Gross Profit       83,900
 Advertising expense
            are reported separately for each department.      79,500
 Store rent expense                                           22,800
 Bad debt expense                                             17,900
 Deprec. expense - delivery equip.                            24,000
 Other operating expenses                                    350,430
   Total operating expenses                                $ 658,780
Operating income                                           $ 90,340
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis       Total

 Net sales                            $1,075,000 $640,300 $1,715,300
Cost of goods sold                       545,280 420,900     966,180
 Gross profit                         $ 529,720 $219,400 $ 749,120
 Gross profit percentages                 49.3%
Operating expenses:
  Store clerks wages expense                              $ 80,250
  Truck drivers wages expense Profit ÷ Net Sales
                        Gross                                 83,900
  Advertising expense $529,720 ÷ $1,075,000                   79,500
  Store rent expense                                          22,800
  Bad debt expense                                            17,900
  Deprec. expense - delivery equip.                           24,000
  Other operating expenses                                   350,430
    Total operating expenses                              $ 658,780
Operating income                                          $ 90,340
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis       Total

 Net sales                            $1,075,000 $640,300 $1,715,300
Cost of goods sold                       545,280 420,900     966,180
 Gross profit                         $ 529,720 $219,400 $ 749,120
 Gross profit percentages                 49.3%    34.3%
Operating expenses:
  Store clerks wages expense                              $ 80,250
  Truck drivers wages expense Profit ÷ Net Sales
                        Gross                                 83,900
  Advertising expense     $219,400 ÷ $640,300                 79,500
  Store rent expense                                          22,800
  Bad debt expense                                            17,900
  Deprec. expense - delivery equip.                           24,000
  Other operating expenses                                   350,430
    Total operating expenses                              $ 658,780
Operating income                                          $ 90,340
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis          Total

 Net sales                            $1,075,000 $640,300   $1,715,300
Cost of goods sold                       545,280 420,900       966,180
 Gross profit                         $ 529,720 $219,400    $ 749,120
 Gross profit percentages                 49.3%     34.3%
Operating expenses:
  Store clerks wages expense                                $  80,250
                      expense
  Truck drivers wages Golf is earning a much bigger            83,900
  Advertising expense profit percentage than Tennis.
                   gross                                       79,500
  Store rent expense                                           22,800
  Bad debt expense                                             17,900
  Deprec. expense - delivery equip.                            24,000
  Other operating expenses                                    350,430
    Total operating expenses                                $ 658,780
Operating income                                            $ 90,340
                     Annie’s Sporting Goods
                        Income Statement
                For Years Ended December 31, 20--
                                     Golf      Tennis      Total

 Net sales                          $1,075,000 $640,300 $1,715,300
Cost of goods sold                     545,280 420,900     966,180
 Gross profit                       $ 529,720 $219,400 $ 749,120
 Gross profit percentages               49.3%    34.3%
Operating expenses:
  Store clerks wages expense                            $ 80,250
                    This does
  Truck drivers wages expense not mean that Golf is         83,900
                more
  Advertising expense profitable overall, we must look      79,500
  Store rent expense departmental operating expenses. 22,800
               at the
  Bad debt expense                                          17,900
  Deprec. expense - delivery equip.                         24,000
  Other operating expenses                                 350,430
    Total operating expenses                            $ 658,780
Operating income                                        $ 90,340
  OPERATING EXPENSES
 Two classifications:
  o Direct
     • Incurred for the sole benefit of and are traceable
       directly to a specific department
     • Assigned to departments based on the actual
       expenses incurred
  o Indirect
     • Incurred for the benefit of the business as a whole
       and cannot be traced directly to a specific
       department
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis    Total

Net sales                          $1,075,000 $640,300 $1,715,300
Cost of goods sold                    545,280 420,900     966,180
Gross profit                       $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense                        $ 80,250
 Truck drivers wages expense                          83,900
 Advertising expense                                  79,500
                Annie’s employs five store clerks.
 Store rent expense                                   22,800
 Bad debt expense work in the Golf department,
               Two                                    17,900
 Deprec. expense - delivery equip.                    24,000
                one in the
 Other operating expenses Tennis department and      350,430
           two assist customers in Both departments. 658,780
   Total operating expenses                        $
Operating income                                   $ 90,340
      STORE CLERK WAGES
           EXPENSE
Employee Number     Dept.         Wages
  1                 Golf          $19,000

  2                 Golf           17,000
  3                 Tennis         15,250
  4                 Both           13,000
  5                 Both           16,000
                                  $80,250
 $29,000 ($13,000 + $16,000) needs to be
   allocated between Golf and Tennis.
      STORE CLERK WAGES
           EXPENSE
                     Golf             Tennis
   Sales          $1,075,000          $640,300
Total Sales       $1,715,300         $1,715,300
                   62.7%                37.3%

              Allocation is made based on
               percentage of total sales.
    STORE CLERKS WAGES
          EXPENSE
                     Golf     Tennis     Total
Direct expense     $36,000   $15,250   $51,250

Indirect expense
allocation:
62.7% x $29,000     18,183              18,183

37.3% x $29,000               10,817    10,817
                   $54,183   $26,067   $80,250
                       Annie’s Sporting Goods
                          Income Statement
                  For Years Ended December 31, 20--
                                       Golf      Tennis      Total

Net sales                            $1,075,000 $640,300 $1,715,300
Cost of goods sold                      545,280 420,900     966,180
Gross profit                         $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense            $54,183   $26,067 $   80,250
 Truck drivers wages expense                                 83,900
 Advertising expense                                         79,500
 Store rent expense                                          22,800
 Bad debt expense                                            17,900
 Deprec. expense - delivery equip.                           24,000
 Other operating expenses                                   350,430
   Total operating expenses                               $ 658,780
Operating income                                          $ 90,340
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis    Total

Net sales                          $1,075,000 $640,300 $1,715,300
Cost of goods sold                    545,280 420,900     966,180
Gross profit                       $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense          $54,183 $26,067 $ 80,250
 Truck drivers wages expense                            83,900
 Advertising expense                                    79,500
 Store rent expense                                     22,800
 Bad debt expense Annie’s has 3 drivers.                17,900
 Deprec. expense - delivery equip.
             1 driver delivers only Golf equipment      24,000
 Other operating expenses                              350,430
                   and 2 drivers deliver both.
   Total operating expenses                          $ 658,780
Operating income                                     $ 90,340
   TRUCK DRIVERS WAGES
         EXPENSE
                       Golf        Tennis     Total
Direct expense       $29,000     $      0   $29,000




            Salary of the one driver who
            delivers only Golf equipment.
   TRUCK DRIVERS WAGES
         EXPENSE
                        Golf       Tennis     Total
Direct expense        $29,000    $      0   $29,000

Indirect expense
allocation:
70%    x    $54,900

30%    x    $54,900


            The two other drivers are allocated
            based on the dollar amount of the
           Golf and Tennis equipment delivered.
   TRUCK DRIVERS WAGES
         EXPENSE
                       Golf      Tennis     Total
Direct expense       $29,000   $      0   $29,000

Indirect expense
allocation:
70%    x   $54,900    38,430               38,430

30%    x   $54,900              16,470     16,470
                     $67,430   $16,470    $83,900
                       Annie’s Sporting Goods
                          Income Statement
                  For Years Ended December 31, 20--
                                       Golf      Tennis      Total

Net sales                            $1,075,000 $640,300 $1,715,300
Cost of goods sold                      545,280 420,900     966,180
Gross profit                         $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense            $54,183   $26,067 $   80,250
 Truck drivers wages expense            67,430    16,470     83,900
 Advertising expense                                         79,500
 Store rent expense                                          22,800
 Bad debt expense                                            17,900
 Deprec. expense - delivery equip.                           24,000
 Other operating expenses                                   350,430
   Total operating expenses                               $ 658,780
Operating income                                          $ 90,340
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis    Total

Net sales                          $1,075,000 $640,300 $1,715,300
Cost of goods sold                    545,280 420,900     966,180
Gross profit                       $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense          $54,183 $26,067 $ 80,250
 Truck drivers wages expense          67,430   16,470    83,900
 Advertising expense                                     79,500
 Store rent expense                                      22,800
 Bad debt expense                                        17,900
                      Annie’s advertising in both the
 Deprec. expense - delivery equip.                       24,000
 Other operating expensesnewspaper and the radio        350,430
   Total operating expenses                           $ 658,780
Operating income                                      $ 90,340
  ADVERTISING EXPENSE
                   GOLF       TENNIS    MIXED
NEWSPAPER        $17,000     $12,000 $16,000
RADIO



        Annie’s newspaper advertising
         is based on the number of
            inches of copy space.
  ADVERTISING EXPENSE
                   GOLF        TENNIS   MIXED
NEWSPAPER       $17,000       $12,000 $16,000
RADIO                                   34,500



        All the radio advertising
         is considered “mixed.”
  ADVERTISING EXPENSE
              GOLF    TENNIS   MIXED
NEWSPAPER   $17,000   $12,000 $16,000
RADIO                          34,500
            $17,000   $12,000 $50,500
    ADVERTISING EXPENSE
                         Golf       Tennis      Total
Direct expense        $17,000      $12,000    $29,000

Indirect expense
allocation:
62.7%    x $50,500     31,664                     31,664

37.3%    x $50,500                  18,836        18,836
                      $31,664      $18,836    $79,500

          The “mixed” costs are allocated
        based on the percentage of total sales.
                       Annie’s Sporting Goods
                          Income Statement
                  For Years Ended December 31, 20--
                                       Golf      Tennis      Total

Net sales                            $1,075,000 $640,300 $1,715,300
Cost of goods sold                      545,280 420,900     966,180
Gross profit                         $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense            $54,183   $26,067 $   80,250
 Truck drivers wages expense            67,430    16,470     83,900
 Advertising expense                    48,664    30,836     79,500
 Store rent expense                                          22,800
 Bad debt expense                                            17,900
 Deprec. expense - delivery equip.                           24,000
 Other operating expenses                                   350,430
   Total operating expenses                               $ 658,780
Operating income                                          $ 90,340
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis    Total

Net sales                          $1,075,000 $640,300 $1,715,300
Cost of goods sold                    545,280 420,900     966,180
Gross profit                       $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense           $54,183 $26,067 $ 80,250
 Truck drivers wages expense           67,430    16,470    83,900
 Advertising expense                   48,664    30,836    79,500
 Store rent expense                                        22,800
 Bad debt expense                                          17,900
 Deprec. expense - delivery equip.
                       Next we will split the rent.        24,000
 Other operating expenses                                 350,430
   Total operating expenses                             $ 658,780
Operating income                                        $ 90,340
      STORE RENT EXPENSE
                       Golf       Tennis       Total
Direct expense

Indirect expense
allocation:
64%    x   $22,800   $14,592                 $14,592

36%    x   $22,800                 $8,208      8,208
                     $14,592       $8,208    $22,800

            All of the rent is considered
           indirect (“mixed”) and will be
   allocated based on square foot of floor space.
                       Annie’s Sporting Goods
                          Income Statement
                  For Years Ended December 31, 20--
                                       Golf      Tennis      Total

Net sales                            $1,075,000 $640,300 $1,715,300
Cost of goods sold                      545,280 420,900     966,180
Gross profit                         $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense            $54,183   $26,067 $   80,250
 Truck drivers wages expense            67,430    16,470     83,900
 Advertising expense                    48,664    30,836     79,500
 Store rent expense                     14,592     8,208     22,800
 Bad debt expense                                            17,900
 Deprec. expense - delivery equip.                           24,000
 Other operating expenses                                   350,430
   Total operating expenses                               $ 658,780
Operating income                                          $ 90,340
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis    Total

Net sales                          $1,075,000 $640,300 $1,715,300
Cost of goods sold                    545,280 420,900     966,180
Gross profit                       $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense           $54,183 $26,067 $ 80,250
 Truck drivers wages expense           67,430   16,470    83,900
 Advertising expense                   48,664   30,836    79,500
 Store rent expense                    14,592    8,208    22,800
 Bad debt expense                       9,000    8,900    17,900
 Deprec. expense - delivery equip.                        24,000
                         All
 Other operating expenses are direct expenses            350,430
                       and
   Total operating expenses are assigned based on      $ 658,780
                                                       $
Operating incomeexperience with accounts written off. 90,340
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis         Total

Net sales                            $1,075,000 $640,300 $1,715,300
Cost of goods sold                      545,280 420,900     966,180
Gross profit                         $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense               $54,183 $26,067 $ 80,250
 Truck drivers wages expense               67,430    16,470     83,900
 Advertising expense                       48,664    30,836     79,500
 Store rent expense                        14,592     8,208     22,800
 Bad debt expense                           9,000     8,900     17,900
 Deprec. Exp. - delivery equip.                                 24,000
 Other operating expenses                                      350,430
   Total operating expenses       3 trucks                   $ 658,780
               1
Operating income exclusively for Golf, other two used for both 90,340
                                                             $
 DEPRECIATION EXPENSE -
  DELIVERY EQUIPMENT
                       Golf       Tennis        Total
Direct expense        $ 9,000    $     0      $ 9,000

Indirect expense
allocation:




         Depreciation on the one truck that
                is exclusively used
           for Golf equipment deliveries
 DEPRECIATION EXPENSE -
  DELIVERY EQUIPMENT
                         Golf       Tennis        Total
Direct expense          $ 9,000    $     0      $ 9,000

Indirect expense
allocation:
70%    x     $15,000    10,500                   10,500

30%    x     $15,000               $ 4,500        4,500
                       $19,500      $ 4,500     $24,000

           The other two trucks are allocated
              based on the dollar amount
                of equipment delivered.
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis       Total

Net sales                            $1,075,000 $640,300 $1,715,300
Cost of goods sold                      545,280 420,900     966,180
Gross profit                         $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense            $54,183   $26,067 $  80,250
 Truck drivers wages expense            67,430    16,470    83,900
 Advertising expense                    48,664    30,836    79,500
 Store rent expense                     14,592     8,208    22,800
 Bad debt expense                        9,000     8,900    17,900
 Deprec. expense - delivery equip.      19,500     4,500    24,000
 Other operating expenses                                  350,430
   Total operating expenses                              $ 658,780
Operating income                                         $ 90,340
        OTHER OPERATING
           EXPENSES
                       Golf      Tennis       Total
Direct expense      $ 84,420    $ 31,980   $116,400

Indirect expense
allocation:          159,380      74,650    234,030
                    $243,800    $106,630   $350,430



     This broad range of expenses are assigned
     and allocated using many of the methods
               described previously.
                       Annie’s Sporting Goods
                          Income Statement
                  For Years Ended December 31, 20--
                                       Golf      Tennis     Total

Net sales                            $1,075,000 $640,300 $1,715,300
Cost of goods sold                      545,280 420,900     966,180
Gross profit                         $ 529,720 $219,400 $ 749,120

Operating expenses:
 Store clerks wages expense            $54,183   $26,067 $ 80,250
 Truck drivers wages expense            67,430    16,470    83,900
 Advertising expense                    48,664    30,836    79,500
 Store rent expense                     14,592     8,208    22,800
 Bad debt expense                        9,000     8,900    17,900
 Deprec. expense - delivery equip.      19,500     4,500    24,000
 Other operating expenses              243,800   106,630   350,430
   Total operating expenses                              $ 658,780
Operating income                                         $ 90,340
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis    Total

Net sales                          $1,075,000 $640,300 $1,715,300
Cost of goods sold                    545,280 420,900     966,180
Gross profit                       $ 529,720 $219,400 $ 749,120
                Operating Income Percentages:
Operating expenses:
               Golf $72,551 ÷ $1,075,000 = 6.7% $ 80,250
 Store clerks wages expense          $54,183 $26,067
                Tennis $17,789 ÷ $640,300 = 2.8%
 Truck drivers wages expense           67,430    16,470   83,900
                                       48,664
 Advertising expense as with the Gross Profit %,
                Just                             30,836   79,500
                                                  8,208
 Store rent expense is more profitable 14,592 Tennis.
               Golf                    than               22,800
 Bad debt expense                       9,000     8,900   17,900
 Deprec. expense - delivery equip.     19,500     4,500   24,000
 Other operating expenses            243,800 106,630     350,430
   Total operating expenses        $ 457,169 $ 201,611 $ 658,780
Operating income                   $ 72,551 $ 17,789 $ 90,340
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis    Total

Net sales                          $1,075,000 $640,300 $1,715,300
Cost of goods sold                    545,280 420,900     966,180
Gross profit                       $ 529,720 $219,400 $ 749,120

Operating expenses:
                 Operating Expense Percentages:
 Store clerks wages expense          $54,183 $26,067 $ 80,250
 Truck drivers Golf $457,169 ÷ $1,075,000 = 42.5%
               wages expense          67,430    16,470    83,900
               Tennis
 Advertising expense $201,611 ÷ $640,300 = 31.5%
                                      48,664    30,836    79,500
 Store rent expense                   14,592     8,208    22,800
 Bad debt expense                      9,000     8,900    17,900
 Deprec. expense - delivery equip.    19,500     4,500    24,000
 Other operating expenses            243,800 106,630     350,430
   Total operating expenses        $ 457,169 $ 201,611 $ 658,780
Operating income                   $ 72,551 $ 17,789 $ 90,340
     DIRECT OPERATING
          MARGIN
 Difference between a department’s gross
  profit and its direct operating expenses
 Indirect expenses are then subtracted
  from the total direct operating margin to
  calculated operating income
  o Indirect expenses are not allocated to specific
    departments
                      Annie’s Sporting Goods
                         Income Statement
                 For Years Ended December 31, 20--
                                      Golf      Tennis         Total

Net sales                            $1,075,000   $640,300 $1,715,300
Cost of goods sold                      545,280    420,900    966,180
Gross profit                         $ 529,720    $219,400 $ 749,120
Direct operating expenses:
  Store clerks wages expense            $36,000    $15,250 $  51,250
  Truck drivers wages expense helps us 29,000
      Direct Operating Margin                                 29,000
  Advertising expense                    17,000     12,000    29,000
    evaluate departmental performance.
  Bad debt expense                        9,000      8,900    17,900
  Deprec. expense - delivery equip.       9,000                9,000
  Other operating expenses               84,420     31,980   116,400
     Total direct operating expenses $ 184,420    $ 68,130 $ 252,550
Dept. direct operating margin        $ 345,300    $151,270 $ 496,570
Indirect operating expenses:
  Store clerks wages expense                               $ 29,000
                       Annie’s Sporting Goods
                          Income Statement
                  For Years Ended December 31, 20--
                                       Golf      Tennis         Total

Net sales                              $1,075,000 $640,300 $1,715,300
Cost of goods sold                        545,280 420,900      966,180
Gross profit                           $ 529,720 $219,400 $ 749,120
                    Direct
Direct operating expenses: Operating Margin percentage
                     Golf $345,300 ÷ $1,075,000 = 32.1%
  Store clerks wages expense              $36,000 $15,250 $ 51,250
                     Tennis $151,270 ÷ $640,300 = 23.6%
  Truck drivers wages expense              29,000                29,000
                Golf is
  Advertising expense once again better! Is it because of the
                                           17,000     12,000     29,000
                Gross                                  both?
  Bad debt expense Profit or Operating Expenses or 8,900
                                            9,000                17,900
  Deprec. expense - delivery equip.         9,000                 9,000
  Other operating expenses                 84,420     31,980    116,400
     Total direct operating expenses   $ 184,420 $ 68,130 $ 252,550
Dept. direct operating margin          $ 345,300 $151,270 $ 496,570
Indirect operating expenses:
  Store clerks wages expense                                  $ 29,000
                       Annie’s Sporting Goods
                          Income Statement
                  For Years Ended December 31, 20--
                                       Golf      Tennis           Total

Net sales                               $1,075,000 $640,300 $1,715,300
Cost of goods sold Direct Operating Expense percentage
                                           545,280 420,900        966,180
                     Golf $184,420 ÷ $1,075,000 = 17.2%
Gross profit                            $ 529,720 $219,400 $ 749,120
                     Tennis $68,130 ÷ $640,300 = 10.6%
Direct operating expenses:
                                            is better!
                        This time Tennis$36,000 $15,250 $ 51,250
  Store clerks wages expense
            Tennis is more effectively controlling their expenses,
  Truck drivers wages expense               29,000                 29,000
            but with Golf’s better Gross Profit, Golf still ended 29,000
  Advertising expense                       17,000     12,000
                   with
  Bad debt expense a better Direct Operating Margin.
                                              9,000      8,900     17,900
  Deprec. expense - delivery equip.           9,000                 9,000
  Other operating expenses                  84,420     31,980     116,400
     Total direct operating expenses    $ 184,420 $ 68,130 $ 252,550
Dept. direct operating margin           $ 345,300 $151,270 $ 496,570
Indirect operating expenses:
  Store clerks wages expense                                   $ 29,000
                       Annie’s Sporting Goods
                          Income Statement
                  For Years Ended December 31, 20--
                                       Golf      Tennis           Total

Net sales                               $1,075,000 $640,300   $1,715,300
Cost of goods sold                         545,280 420,900       966,180
Gross profit                            $ 529,720 $219,400    $ 749,120
                  expenses:
Direct operating Direct Operating Margin also helps us
                                           $36,000 $15,250
  Store clerks wages expense contribution a department
                determine the                                 $  51,250
                                            29,000
  Truck drivers wages expenseoverall operating income
                  makes to the                                   29,000
  Advertising expense                       17,000
                              of the company.        12,000      29,000
  Bad debt expense                           9,000    8,900      17,900
  Deprec. expense - delivery equip.          9,000                9,000
  Other operating expenses                  84,420   31,980     116,400
     Total direct operating expenses    $ 184,420 $ 68,130    $ 252,550
Dept. direct operating margin           $ 345,300 $151,270    $ 496,570
Indirect operating expenses:
  Store clerks wages expense                                  $ 29,000
     Total direct operating expenses   $ 184,420 $ 68,130 $ 252,550
Dept. direct operating margin          $ 345,300 $151,270 $ 496,570
Indirect operating expenses:
  Store clerks wages expense                              $ 29,000
  Truck drivers wages expense                                54,900
  Advertising expense                                        50,500
  Store rent expense                                         22,800
  Deprec. expense - delivery equip.                          15,000
  Other operating expenses                                  234,030
     Total indirect operating exp.                        $ 406,230
Operating income                                          $ 90,340

                Tennis department contributes $151,270
                            to help cover the
                      indirect operating expenses.
       DISCONTINUING A
         DEPARTMENT
 Management must focus on the revenues
  and expenses that will be eliminated if a
  department is discontinued.
  o Need to look at the Direct Operating Margin.
  o Indirect expenses are usually for the whole
    business and therefore will not be reduced
    when a department is discontinued.
              DISCONTINUING A
                DEPARTMENT
                              Dept A     Dept B      Dept C       Total

Net Sales                     $210,000   $185,000    $170,000    $565,000
Cost of Goods Sold             115,000     110,000     96,000     321,000
Gross Margin                  $ 95,000   $ 75,000    $ 74,000    $244,000
Direct Operating Expenses       55,000      45,000     54,000     154,000
Dept. Direct Oper. Margin     $ 40,000   $ 30,000    $ 20,000    $ 90,000
Indirect Operating Expenses     27,000      22,000     25,000      74,000
Operating income (loss)       $ 13,000    $ 8,000    $ (5,000)   $ 16,000


                 Given the Net Loss, management
              is considering discontinuing Dept. C.
              DISCONTINUING A
                DEPARTMENT
                              Dept A     Dept B      Dept C       Total

Net Sales                     $210,000   $185,000    $170,000    $565,000
Cost of Goods Sold             115,000     110,000     96,000     321,000
Gross Margin                  $ 95,000   $ 75,000    $ 74,000    $244,000
Direct Operating Expenses       55,000      45,000     54,000     154,000
Dept. Direct Oper. Margin     $ 40,000   $ 30,000    $ 20,000    $ 90,000
Indirect Operating Expenses     27,000      22,000     25,000      74,000
Operating income (loss)       $ 13,000    $ 8,000    $ (5,000)   $ 16,000

          But Dept. C contributes $20,000
           to cover the indirect expenses!!!
       Without it, profits would be even worse!!

				
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