The
problems arise only in indirect expenses which are common for the concern as a
whole and may be relating to sales, distribution, administration, finance and
till these are distributed among the departments on same suitable basis, the
net profits of difference departments cannot be ascertained. Direct expenses
are easily indentified with a particular department is known as direct expenses
like purchase, wages, salary, carriage etc. these expenses are directly charged
to respective department. Such expenses which cannot be directly related to a
particular department or cannot have precise allocation may be divided among
the different departments as follows:
1.) Selling Expenses:- These expenses
include discount allowed, bad debts, selling commission, carriage on
sales and should be divided among the different departments on the basis of
sales. It must be noted carefully that sales for this purpose also include
transfers to other departments.
2.) Building Expenses:- Rent and rates,
insurance on building, repairs, etc. are expenses which are relating to
building premises and should be distributed among the different departments
according to the space occupied by each department. It any department is
enjoying any special benefit then charge for these expenses must be adjusted
according to the special benefit enjoyed by a particular department.
Departments having front location must bear more charges than the departments
in rear part of the building.
3.) Heating and lighting:- if there are no
separate meters, these may be apportioned among the different
departments on the basis of points, lamps used, area or inversely to the number
of windows.
4.) Power:- It should be
apportioned on the basis of probable usage as determined by numbers and types of
machines adjusted where necessary according to running hours in absence of
separate meters for each department.
5.)
Advertising:-It should be
apportioned on the basis of advertising space used by the different departments or
on the basis of advertisement for the benefit of all departments must be
apportioned equally among the departments.
6.)
Insurance Premium:- It must be seen
whether the insurance premium has been paid for stock, premises or
loss of profit or workmen’s compensation and should be apportioned on the basis
of stock carried, proportion of premises occupied, profits earned in the
preceding years and wages respectively but if there exists any abnormal feature
relating to any department, that may be considered while apportioning such
expenses.
7.) Depreciation:- it should be
allocated among the different departments on the basis of assets employed in
each department.
8.)
Labour Welfare expenses:- These should be
apportioned among the different departments on the basis of number of employees working
in each department.
9.) Carriage inward:- Carriage Inward
are related to the purchases so these exp. Should be apportioned
among the different departments on the basis of Purchases of each department.
10.) Works manager’s salary:- works manager’s
salary should be allocated among the different departments on the basis of time spent in
each department.
EXPENSES WHICH CANNOT BE
ALLOCATED
There are
Certain expenses which cannot be allocated on some equitable basis such as
director fees, managerial remuneration, debenture interest, share transfer,
income tax, office expenses, general manager’s salary, dividend paid etc., are
cannot be allocated or apportioned. These expenses shall be charged to general
or combined profit and loss account. Profit of all departments should be
brought down in one total and such expenses should be debited and
non-departmental profits credited to this profit without making any effort for
its apportionment among different departments in combined income account.