tailieunhanh - Accounting and Finance Revision Notes_11

Tham khảo tài liệu 'accounting and finance revision notes_11', tài chính - ngân hàng, kế toán - kiểm toán phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | Evaluating the Operations of the Business SECTION III Profit Center Reporting The last section was concerned primarily with reporting on operational issues such as machine utilization and scrap rates. However these are of no import if a company cannot consistently create a profit or spin off enough cash flow to keep those operations running. In this section we review the concept of profit centers and how one should report their results. Every company creates and issues an income statement that reveals the financial performance of the entire company. For smaller organizations that deal with just a single line of business such as a plumbing service company this is sufficient. However if there are several lines of business such as a plumbing service group a plumbing hardware store and an air conditioning repair staff then the revenues and costs of each one should be recorded separately so that management can see if some areas are less profitable than others. An example of this report is shown in Figure where we list a separate income statement for each profit center which summarizes into the summary-level income statement for the entire company as shown at the far right side of the report. Also in the report is a separate column for corporate overhead. These are costs that cannot be specifically allocated to a profit center. The basic rule for making the allocation determination is whether an overhead cost will disappear if a profit center is eliminated if not then do not allocate the overhead cost to the profit center. Also there is an interest expense charged to each profit center based on the amount of fixed assets and working capital that each one uses. Finally after the profit figures at the bottom of the report we add back the depreciation expense for each profit center since this is a noncash expense which yields the actual cash inflow or outflow to or from each profit center. The report reveals that the plumbing hardware store is making very little money .