Chapter 18 Cost Accounting for a Merchandising Business
Responsibility Accounting: Assigning control of business revenues, costs, and expenses as a responsibility of a specific manager.
Direct Expense: An operating expense identifiable with and chargeable to the operation of a specific department.
Indirect Expense: An operating expense chargeable to overall business operations and not identifiable with a specific department.
Departmental Margin: The revenue earned by a department less its cost of merchandise sold and less its direct expenses.
Departmental Margin Statement: A statement that reports departmental margin for a specific department.
Responsibility Statements: Financial statements reporting revenue costs, and direct expenses under a specific department's control.
Controlling costs is necessary to a business' success. Two important features for a successful responsibility accounting system are:
1. Each manager is given responsibility for only those revenues, costs, and expenses for which the manager can make decisions and affect outcomes.
2. The revenues, costs, and expenses must be readily identifiable with the specific manager's unit.
In responsibility accounting expenses are usually identified as direct and identified to a department or indirect which cannot be identified to a specific department..
Steps in completing a Worksheet:
1. Extend balance sheet items to the Balance Sheet Columns.
2. Extend revenue, cost and direct expense items to the appropriate departmental margin statement columns.
3. Extend the indirect expense items to the Income Statement Columns.
4. Calculate the departmental margin for each department.
5. Calculate the federal income tax expense and record it.
7. Total the adjustments, income statement and balance sheet columns as well as calculate net income after tax and rule the journal.
Steps in completing an Income Statement:
1. Write the heading.
2. Prepare the net sales section. Information is taken from the departmental margin statements.
3. Prepare the cost of merchandise sold section. Information taken from the departmental margin statement.
4. Prepare the gross profit section. Information is obtained from the departmental margin statements.
5. Prepare the direct expenses section. Information taken from the departmental statement
6. Prepare the departmental margin section. Information taken from the departmental statement.
7. Prepare the indirect expenses section. Information taken from the income statement columns of the worksheet.
8. Complete the income statement.
9. Calculate the component percentages.
Joint Projects: Problem 18-1, 18-2, 18,3.
Individual Projects: Problem 18-M, 18-C, Study Guide 18.