1. M S College of Arts,Science & Commerce. Financial Accountancy
DEPARTMENTAL ACCOUNTING

2. DEPARTMENTAL ACCOUNTING
Provides separate information about the revenues and expenses of each department
Useful to management for three purposes:
Planning
Control
Performance evaluation
Generally for internal financial statement users
Often only the income statement is prepared

3. 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
Sales, Cost of Goods Sold and Gross Profit
are reported separately for each department.
$ ,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
$ ,340

4. Gross Profit ÷ Net 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
Gross profit percentages
49.3%
Operating expenses:
Store clerks wages expense
Gross Profit ÷ Net Sales
$529,720 ÷ $1,075,000
$ ,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
$ ,340

5. Gross Profit ÷ Net 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
Gross profit percentages
49.3%
34.3%
Operating expenses:
Store clerks wages expense
Gross Profit ÷ Net Sales
$219,400 ÷ $640,300
$ ,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
$ ,340

6. Golf is earning a much bigger gross profit percentage than Tennis.
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
Golf is earning a much bigger
gross profit percentage than Tennis.
$ ,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
$ ,340

7. This does not mean that Golf is more profitable overall, we must look
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
This does not mean that Golf is
more profitable overall, we must look
at the departmental operating expenses.
$ ,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
$ ,340

8. OPERATING EXPENSES Two classifications: Direct Indirect
Incurred for the sole benefit of and are traceable directly to a specific department
Assigned to departments based on the actual expenses incurred
Indirect
Incurred for the benefit of the business as a whole and cannot be traced directly to a specific department

9. Annie’s employs five store clerks. Two work in the Golf 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
$ ,250
Truck drivers wages expense
83,900
Advertising expense
79,500
Annie’s employs five store clerks.
Two work in the Golf department,
one in the Tennis department and
two assist customers in Both departments.
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
$ ,340

10. 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.

11. 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.

12. 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

13. 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
$ ,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
$ ,340

14. 1 driver delivers only Golf equipment and 2 drivers deliver both.
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
$ ,250
Truck drivers wages expense
83,900
Advertising expense
79,500
Store rent expense
22,800
Annie’s has 3 drivers.
1 driver delivers only Golf equipment
and 2 drivers deliver both.
Bad debt expense
17,900
Deprec. expense - delivery equip.
24,000
Other operating expenses
350,430
Total operating expenses
$ 658,780
Operating income
$ ,340

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

16. TRUCK DRIVERS WAGES EXPENSE
Golf
Tennis
Total
Direct expense
$29,000 $
$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.

17. TRUCK DRIVERS WAGES EXPENSE
Golf
Tennis
Total
Direct expense
$29,000 $
$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

18. 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
$ ,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
$ ,340

19. Annie’s advertising in both the newspaper and the radio
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
$ ,250
Truck drivers wages expense
67,430
16,470
83,900
Advertising expense
79,500
Store rent expense
22,800
Annie’s advertising in both the
newspaper and the radio
Bad debt expense
17,900
Deprec. expense - delivery equip.
24,000
Other operating expenses
350,430
Total operating expenses
$ 658,780
Operating income
$ ,340

20. Annie’s newspaper advertising is based on the number of
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.

21. All the radio advertising
ADVERTISING EXPENSE
GOLF
TENNIS
MIXED
NEWSPAPER
$17,000
$12,000
$16,000
34,500
RADIO
All the radio advertising
is considered “mixed.”

22. ADVERTISING EXPENSE $17,000 $12,000 $16,000 34,500 $17,000 $12,000
GOLF
TENNIS
MIXED
NEWSPAPER
$17,000
$12,000
$16,000
34,500
RADIO
$17,000
$12,000
$50,500

23. ADVERTISING EXPENSE The “mixed” costs are allocated
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.

24. 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
$ ,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
$ ,340

25. Next we will split the rent.
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
$ ,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
Next we will split the rent.
Deprec. expense - delivery equip.
24,000
Other operating expenses
350,430
Total operating expenses
$ 658,780
Operating income
$ ,340

26. STORE RENT EXPENSE All of the rent is considered
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.

27. 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
$ ,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
$ ,340

28. All are direct expenses and are assigned based on
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
$ ,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 are direct expenses
and are assigned based on
experience with accounts written off.
Other operating expenses
350,430
Total operating expenses
$ 658,780
Operating income
$ ,340

29. 1 exclusively for Golf, other two used for both
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
$ ,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
3 trucks
1 exclusively for Golf, other two used for both
Total operating expenses
$ 658,780
Operating income
$ ,340

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

31. DEPRECIATION EXPENSE -DELIVERY EQUIPMENT
Golf
Tennis
Total
Direct expense
$ 9,000 $
$ 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.

32. 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
$ ,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
$ ,340

33. 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.

34. 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
$ ,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
$ ,340

35. Operating Income Percentages: Golf $72,551 ÷ $1,075,000 = 6.7%
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:
Golf $72,551 ÷ $1,075,000 = 6.7%
Tennis $17,789 ÷ $640,300 = 2.8%
Just as with the Gross Profit %,
Golf is more profitable than Tennis.
Operating expenses:
Store clerks wages expense
$54,183
$26,067
$ ,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
$ 457,169
$ 201,611
$ 658,780
Operating income
$ ,551
$ 17,789
$ ,340

36. Operating Expense Percentages:
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 Expense Percentages:
Golf $457,169 ÷ $1,075,000 = 42.5%
Tennis $201,611 ÷ $640,300 = 31.5%
Operating expenses:
Store clerks wages expense
$54,183
$26,067
$ ,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
$ 457,169
$ 201,611
$ 658,780
Operating income
$ ,551
$ 17,789
$ ,340

37. 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
Indirect expenses are not allocated to specific departments

38. Direct Operating Margin helps us evaluate departmental performance.
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
$ ,250
Direct Operating Margin helps us
evaluate departmental performance.
Truck drivers wages expense
29,000
29,000
Advertising expense
17,000
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

39. 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 Margin percentage
Golf $345,300 ÷ $1,075,000 = 32.1%
Tennis $151,270 ÷ $640,300 = 23.6%
Golf is once again better! Is it because of the
Gross Profit or Operating Expenses or both?
Direct operating expenses:
Store clerks wages expense
$36,000
$15,250
$ ,250
Truck drivers wages expense
29,000
29,000
Advertising expense
17,000
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

40. This time Tennis is better!
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
Direct Operating Expense percentage
Golf $184,420 ÷ $1,075,000 = 17.2%
Tennis $68,130 ÷ $640,300 = 10.6%
This time Tennis is better!
Tennis is more effectively controlling their expenses,
but with Golf’s better Gross Profit, Golf still ended
with a better Direct Operating Margin.
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
$ ,250
Truck drivers wages expense
29,000
29,000
Advertising expense
17,000
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

41. 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:
Direct Operating Margin also helps us
determine the contribution a department
makes to the overall operating income
of the company.
Store clerks wages expense
$36,000
$15,250
$ ,250
Truck drivers wages expense
29,000
29,000
Advertising expense
17,000
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

42. Tennis department contributes $151,270 indirect operating expenses.
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.

43. DISCONTINUING A DEPARTMENT
Management must focus on the revenues and expenses that will be eliminated if a department is discontinued.
Need to look at the Direct Operating Margin.
Indirect expenses are usually for the whole business and therefore will not be reduced when a department is discontinued.

44. 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.

45. 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!!