DEPARTMENTAL A/C In hotel there are many department ,some of them are revenue producing department & others are non-revenue producing department.These non- revenue producing department are equally important as without them the other departments can’t produce revenue.In departmental a/cing only those departments which produce revenue are taken into a/c.The department means the revenue producing department ‘under the head departmental a/cing’.The management is always been to know the gross profit,departmental profit & net profit of each department.It can be compared with budgeted profit & with previous years & other departments as well on knowing these details the management can decide whether dept functions is efficient or not & if not then what corrective major can be taken. One of the major benefit of departmental a/cing i.e the costs are divided into direct & indirect cost.Direct cost are those cost incurved exclusively by the dept where as indirect cost are general cost incurved by the establishment or a whole & shared between departments on some arbitrary basis.Direct & indirect cost are often referred to as controllable & uncontrollable cost respectively.This is because direct cost should be fully controllable by the departmental manager where as indirect cost are not controllable by him. In addition in a business consisting of several department it is clearly necessary to find the separate result pf each department otherwise the fact that some department are being operated at a loss will not be revealed. BOOK KEEPING RECORDS:- In order to be able to asserting of the profit of each dept. Suitably analyse records i.e subsidiary books & ledger a/c must be kept.The exact analysis of income & expenditure depends on the particular circumstances of each business & on the degree of departmentalization desired.
Transcript
DEPARTMENTAL A/C
In hotel there are many department,some of them are revenue producing
department & others are non-revenue producing department.These non-
revenue producing department are equally important as without them the other
departments can’t produce revenue.In departmental a/cing only those
departments which produce revenue are taken into a/c.The department means
the revenue producing department ‘under the head departmental a/cing’.The
management is always been to know the gross profit,departmental profit & net
profit of each department.It can be compared with budgeted profit & with
previous years & other departments as well on knowing these details the
management can decide whether dept functions is efficient or not & if not then
what corrective major can be taken.
One of the major benefit of departmental a/cing i.e the costs
are divided into direct & indirect cost.Direct cost are those cost incurved
exclusively by the dept where as indirect cost are general cost incurved by the
establishment or a whole & shared between departments on some arbitrary
basis.Direct & indirect cost are often referred to as controllable & uncontrollable
cost respectively.This is because direct cost should be fully controllable by the
departmental manager where as indirect cost are not controllable by him.
In addition in a business consisting of several department it is
clearly necessary to find the separate result pf each department otherwise the
fact that some department are being operated at a loss will not be revealed.
BOOK KEEPING RECORDS:-
In order to be able to asserting of the profit of each dept.
Suitably analyse records i.e subsidiary books & ledger a/c must be kept.The
exact analysis of income & expenditure depends on the particular circumstances
of each business & on the degree of departmentalization desired.
Methods to know departmental profit:-
There are 3 main methods by which departmental final
a/cing may be prepared.These are as follows:-
a.Gross profit method
b.Departmental profit method
c.Net profit method
a.GROSS PROFIT METHOD
This is the method most commonly used in hospitality establishment. In enables
& analysis of purchase,sales & stocks only i.e items affecting gross profit of each
department.Its aim is to control the gross profit of each dept.Expenses such as
wages, salaries,advertisement,electricity are not analysed and are debited in the
profit & loss a/c against the total of gross profit+any other income,such as room
sales,discount receive,investment income.
The main advantage of those method is simplicity.its
disadvantage are:-
1.no attempt is made to control departmental expenses such as wedges,salaries
etc.
2.A dept may earn a high percentage of gross profit.Yet of its over heads are
high contribute little to the net profit of the business.
Trading & profit & loss a/c Particular Dept(A) Dept(B) Dept(C) Total Particular Dept(A) Dept(B) Dept(C)
Opening stock purchase
Sales Gross profit b/d Discount received Commission received Rent received Net loss
Less closing stock
Cost of good sold profit
Wedges & salaries
Rent,rates & taxes
Lighting heating
Prepare & maintenance
Printing stationary
Depreciation
Miscellaneous expenses
Net profit
b.DEPARTMENTAL PROFIT METHOD
The second method is excellent as it requires elaborate set
of records & high degree of departmentalization & therefore can only be applied
in large hospitality operations.The aim of this method is to accepting &control
the departmental profit of each section of a business.
Departmental profit may be defined as the total revenue of
a department less the cost of good sold,departmental wedges,salaries & any
other expenses attributable to that department.As other expenses those
incurved on behalf of the business as a whole such as rent,taxes,advertising etc.
are debited against a total of departmental profit in the general profit & loss
a/c.
It will be appreciated that this method is both good a/c &
good management as in effect each departmental manager is made responsible
for all income & expenditure he is capable of controlling. In order to produce an
adequate amount of departmental profit he must control not only the cost of
good he sales but also other direct expenses incurred by his departments.
c.NET PROFIT METHOD
Under this method all expenses are debited to
revenue producing department in order to arrive at or figure of net profit for
each of them.Expenses that are attributable to any organisation from a certain
department are allocated to that dept expenses which are incurved or behalf of
the business as a whole are apportion or some fair & reasonable basis as before
the departments concerns. Thus rent & rates could be apportion or the basis of
the floor space occupied by each dept.General manager salary could apportion
or the basis of the term over(sales)of each dept etc.
Arguments in favour of this method are:-
a.Expenditure which has to be apportion benefits on the department concern
each dept should therefore be charged with a fair proportion of the total.
b.The dept may produce a large amount of gross profit,yet if its fixed expenses
are high,so little or no net profit.
c.The main purpose of business is to make profit & attempt should be made to
find how much net profit has been made by each dept.
Arguments against this method are:-
a.Whatever method of apportionment is chosen its always arbitrary method.
b. Apportion (indirect)expenses are incurved to benefits the business as a whole
is a particular dept where close down many of expenses would remain
unchanged.
c.The apportionment of expenses may give a misleading picture of the result
achieved by dept.
Trading & profit * loss a/c
Departments Sales Cost of sales Departmental exp
Deparrtmental P & L
A ** ** ** **
B ** ** ** ** C ** ** ** **
D ** ** ** **
(+)Other sources of income
Interest received ***
Discount received ***
Commission received *** ***/***
(-)Unapportioned
Salaries ***
Rent ***
Advertisement ***
Net profit ***/***
Net profit method formulas
Trading and profit & loss a/c for the year ended.
Basis of cost allocation
There is no set produce laid down for cost allocation. The cost allocation may
differ from place to place from one type of organization to another from
management to management. The direct cost is automatically debited to
individual departments. If the direct cost which needs to be allocated to
different dept and indirect cost should not be arbitrarily divided among depts.
But it should have a meaningful relationship between the profit centre and the
amount of indirect cost i.e to be allocated to it. To allocate a particular indirect
cost to various dept. there may be more than one base to choose,one hotel may
find one particular method more suitable another hotel dept head may agree to
other method of allocation.
The following are the different basis of allocating the cost.
Particular Dept(A) Dept(B) Dept(C) Total Particular Dept(A) Dept(B) Dept(C) Total
Costs of good sold
By sales By gross profit b/d
To gross profit
To salaries To wages
To advertisement
To rent To net profit
Cost Basis
1.Interest a.Total capital employeed in
the dept.
b.square ft of area occupied
c.ratio to sales
2.Insurance a.square ft of area occupied
b.amount of each dept issue
c.the total value of each
assets
3.Taxes a.ratio to sales
b.basis of tax
4.Rent a.ratio to sales
b. square ft of area occupied
5.Depriciation a. Square feet of area occupied (Building) b. Value of assets c. Number of hours machines
are used
6. Telephone a. Each department can be metered b. Number of extensions sanctioned
c. Ratio of sales
7.Employee’s Benefit a. Number of employees b. Refer to payroll records 8. Advertisement a. Ratio to sale
9.Light & power a.No of light/power
b.Cubic ft of area occupied
c.No of hours the dept
operates
d.Ratio of sales
ACCOUNTS
Q1.Prepare a dept income statement from the following information?
