Gross Profit Section Of Departmental Income Statement

gross Profit Section Of Departmental Income Statement Bill Wal

Prepare the gross profit section of a departmental income statement for Walters and Jennings Sportswear, which operates on a department basis including running shoes, walking shoes, and specialty shoes. Use the provided sales and cost of goods sold data for each department to calculate the gross profit for each department and for the business in total.

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In the context of retail businesses, especially those selling diverse product categories like athletic footwear, departmental income statements are fundamental for assessing the profitability of individual divisions. The gross profit section of such a statement provides insights into how effectively each department manages its direct costs relative to sales. Walters and Jennings Sportswear exemplifies this approach by segmenting their operations into three primary categories: running shoes, walking shoes, and specialty shoes. This segmentation allows for targeted profit analysis, facilitating strategic decision-making concerning inventory, marketing, and pricing strategies.

To construct the gross profit section, we first compile the sales and cost of goods sold (COGS) data for each department. For the running shoes department, sales amounted to $36,000, with COGS totaling $23,400. The gross profit is calculated as sales minus COGS, which yields $12,600. Similarly, for the walking shoes department, sales reached $42,000 with COGS at $23,520, resulting in a gross profit of $18,480. The specialty shoes department recorded sales of $12,000 and COGS of $7,600, resulting in a gross profit of $4,400.

Adding up these figures, the total sales for all departments amount to $90,000 ($36,000 + $42,000 + $12,000), and the total COGS equals $54,520 ($23,400 + $23,520 + $7,600). The overall gross profit for the business is therefore $35,480, which reflects the gross profit margin when viewed as a collective. The gross profit margin, an essential profitability ratio, can be calculated for each department as (Gross Profit / Sales) × 100, providing insight into each segment’s efficiency in managing direct costs relative to sales.

For example, the gross profit margins are approximately 35% for running shoes ($12,600 / $36,000) × 100, 44% for walking shoes ($18,480 / $42,000) × 100, and 36.67% for specialty shoes ($4,400 / $12,000) × 100. These margins can be used to benchmark each department’s performance against industry standards or past periods. The overall gross profit margin for the combined operations is approximately 39.4% ($35,480 / $90,000) × 100.

Such departmental analysis enables Walters and Jennings to identify high-margin segments and areas where cost controls may be necessary. It also aids in strategic resource allocation, product mix adjustments, and sales strategies tailored to each department's profitability profile. By regularly updating the departmental gross profit statement, management can monitor trends, evaluate pricing effectiveness, and implement operational improvements that enhance overall profitability.

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