9. Divisible will be some cases in which a cost may be ascribed to two or more divisions of the statement. If this item cannot be separated with reasonable accuracy into its component parts, then it is advisable to carry it either as an administra tive expense or to allocate it to the division to which the greater part of it belongs.
For example, general administrative salaries rep resent a cost which properly belongs to one phase of the business just as much as to another. They can not be allocated with any degree of accuracy unless the administrative officers keep time-records showing exactly the amount of time they give to each kind of work. But it is seldom possible for the officers to keep such records. The same may be said in regard to any other administrative expenses. Rather than instal the elaborate cost system necessary if these expenses are to be distributed over manufacturing and trading operations, the management generally lists each separately in the economic summary under a heading which clearly designates that it is an expense pertaining to all the business, and not simply to a part.
10. Departmental business man wishes to know a great deal more than simply what his total profit or loss amounts to, and how it is allocated to the various operating functions. If his business is composed of several departments he desires to know the progress of each department, as well as the prog ress of the business as a whole. To this end he pre pares departmental statements, summaries which are complete in themselves, but which must be grouped and added before he can ascertain the total profit and loss. A separate account is kept with each depart ment in order that expenses and income may be prop erly distributed.
11. Illustration of departmental some lines of business the organization is such that selling costs, and even many administrative costs, are incurred separately, in connection with the several lines of product or service. The opposite form, gives a comparative statement of the operation of the various departments of a certain department store whose organization is of this type.
This statement is both interesting and instructive. It shows which lines of goods are making substantial contributions to profits, as the business has been con ducted, and which are not. "Suits and coats" is ap
parently a profitable department. The waist depart ment is also profitable, altho not to the same degree, while "jewelry and neckwear" shows a loss. The business of the other three departments is variable— sometimes profitable, and sometimes unprofitable, but always doubtful.
A careful study of this statement form raises ques tions of business policy. Would it not be advanta geous to abolish the jewelry and neckwear depart ment? If this is not done, an investigation to deter mine the efficiency of its operation should certainly be made. Again, what is the matter with the man agement of the whole store, or with that of the sales department, that the statement should show a general decline in the profits? This brief analysis serves to indicate the uses which may be made of such a form of statement.
12. rule is important enough to warrant repetition, that in the preparation of an economic summary it must always be borne in mind that information is of the greatest value when it is presented in condensed form. Consequently it is of the utmost importance not to permit the summary to become clogged with a mass of detail. For this reason it is advisable to set down details in substate ments and to keep these separate from the economic summary. Otherwise the primary 'end and object of the summary is frustrated.
13. Preparation of economic the discussion of the working sheet the method of gather ing information preparatory to making an economic summary was explained in some detail. In the work ing sheet on page 170, there appears in the column headed, "economic summary" a group of accounts that must be combined into a statement that will pre sent classified, intelligible information regarding the progress of the business for the past year.
Since the firm whose accounts are the subject of this illustration is a manufacturing concern, the manu facturing expenses must be ascertained and noted in the order of their accumulation. On page 212, a statement of income and profit-and-loss drawn from this working sheet is presented. This statement, which is in narrative form, begins with a list of the amount of sales; from the total the allowances on sales are deducted. The balance remaining, $558,500, rep resents the net sales for the year.