© 2015 Cengage Learning. All Rights Reserved. Learning Objectives © 2015 Cengage Learning. All Rights Reserved. LO5Distinguish between direct and indirect expenses of a departmentalized business. LO6Prepare a departmental margin statement. LO7Calculate and analyze vertical analysis ratios. 1 LESSON4-2 Responsibility Statements for a Merchandising Business

© 2015 Cengage Learning. All Rights Reserved. Features of a Responsibility Accounting System ●Assigning control of revenues, costs, and expenses to a specific manager is called responsibility accounting. ●An operating expense identifiable with and chargeable to the operation of a specific department is called a direct expense. ●An operating expense chargeable to overall business operations and not identifiable with a specific department is called an indirect expense. SLIDE 2 LO5 Lesson 4-2 © 2015 Cengage Learning. All Rights Reserved.

Departmental Margin Statement SLIDE 3 LO6 Lesson 4-2 © 2015 Cengage Learning. All Rights Reserved. ●Financial statements reporting revenue, costs, and direct expenses under a specific department’s control are called responsibility statements. ●The revenue earned by a department less its cost of merchandise sold and less its direct expenses is called departmental margin. ●A statement that reports departmental margin for a specific department is called a departmental margin statement. ●The operating revenue remaining after cost of merchandise sold has been deducted is called gross profit.

© 2015 Cengage Learning. All Rights Reserved. Departmental Margin Statement SLIDE 4 LO6 Lesson 4-2 © 2015 Cengage Learning. All Rights Reserved. The operating revenue remaining after cost of merchandise sold has been deducted is called gross profit.

© 2015 Cengage Learning. All Rights Reserved. Vertical Analysis of Departmental Margin Statements SLIDE 5 LO7 Lesson 4-2 © 2015 Cengage Learning. All Rights Reserved. ●A comparison between two components of financial information is called a financial ratio. ●Reporting an amount on a financial statement as a percentage of another item on the same financial statement is called vertical analysis.

© 2015 Cengage Learning. All Rights Reserved. Lesson 4-2 Audit Your Understanding 1.What two features are required if responsibility accounting is to be successful? SLIDE 6 ANSWER a. Each manager is assigned responsibility for those revenues, costs, and expenses for which the manager can make decisions and affect the outcome. b. The revenues, costs, and expenses must be readily identifiable with the manager’s unit. Lesson 4-2 © 2015 Cengage Learning. All Rights Reserved.

Lesson 4-2 Audit Your Understanding 2.For what type of accounts does Whiley have separate departmental accounts in the general ledger? SLIDE 7 ANSWER Revenue, cost of merchandise sold, and direct expenses. Lesson 4-2 © 2015 Cengage Learning. All Rights Reserved.

Lesson 4-2 Audit Your Understanding 3.How are the vertical analysis ratios for departmental margin calculated? SLIDE 8 ANSWER By dividing the amount on each line by the amount of departmental net sales. Lesson 4-2 © 2015 Cengage Learning. All Rights Reserved.