Solution 15.3
Departmental Income Statement
Based on Net Profit Method
|
|
Accommodation |
Restaurant |
|
Bar |
Total |
|||||||
|
|
|
€ |
|
€ |
|
€ |
||||||
|
|
|
|
|
|
|
|
||||||
|
Sales |
|
500,000 |
|
250,000 |
|
200,000 |
||||||
|
Less cost of sales |
|
|
|
|
|
|
||||||
|
Opening stock |
|
|
|
4,000 |
|
3,000 |
||||||
|
Purchases |
|
|
|
120,000 |
|
90,000 |
||||||
|
closing stock |
|
|
|
3,500 |
|
2,000 |
||||||
|
|
|
______ |
|
120,500 |
|
91,000 |
||||||
|
Gross profit |
|
500,000 |
|
129,500 |
|
109,000 |
||||||
|
|
|
|
|
|
|
|
||||||
|
Less direct expenses |
|
|
|
|
|
|
||||||
|
Wages |
|
117,500 |
|
80,120 |
|
32,500 |
||||||
|
Repairs and main |
|
29,500 |
|
14,500 |
|
6,000 |
||||||
|
|
|
147,000 |
|
94,620 |
|
38,500 |
||||||
|
Less Indirect expenses |
|
|
|
|
|
|
||||||
|
Electricity & power |
60.00% |
27,000 |
35% |
15,750 |
5.00% |
2,250 |
||||||
|
Rent & Rates |
60.00% |
73,200 |
30% |
36,600 |
10.00% |
12,200 |
||||||
|
Depreciation |
60.00% |
36,000 |
30% |
18,000 |
10.00% |
6,000 |
||||||
|
Postage & telephone |
52.63% |
9,211 |
26.32% |
4,605 |
21.05% |
3,684 |
||||||
|
Advertising |
52.63% |
23,684 |
26.32% |
11,842 |
21.05% |
9,474 |
||||||
|
Laundry & cleaning |
52.63% |
4,737 |
26.32% |
2,368 |
21.05% |
1,895 |
||||||
|
Administration |
52.63% |
36,842 |
26.32% |
18,421 |
21.05% |
14,737 |
||||||
|
|
52.63% |
210,674 |
26.32% |
107,587 |
21.05% |
50,239 |
||||||
|
Net Profit / (Loss) |
|
142,326 |
|
(72,707) |
|
20,261 |
||||||
The main disadvantages of the net profit method are:
Needs elaborate accounting system
Method of apportionment can be arbitrary and subjective
Departments contributing to the organisation may now show a net loss
Incorrect decision making (shutdown)
Managers may be demotivated by inclusion of uncontrollable costs