A level-readyAll subjects · Accounting · WAC11 The Accounting System and Costing
Departmental statements of profit or loss
Edexcel IAL Accounting · WAC11 The Accounting System and Costing
A business with several departments can prepare a columnar statement of profit or loss to see how each one performs (spec 1.3.7).
Allocation and apportionment
- Allocate costs that belong wholly to one department (its own wages, its own purchases).
- Apportion shared costs using a fair basis:
- rent, rates, heating, building insurance: floor area (or volume);
- advertising: revenue;
- staff welfare, canteen: number of employees;
- depreciation and insurance of equipment: cost or value of equipment.
Use the basis the question gives.
Columnar layout
| Clothing £ | Footwear £ | Total £ | |
|---|---|---|---|
| Revenue | 120,000 | 80,000 | 200,000 |
| Cost of sales | (66,000) | (52,000) | (118,000) |
| Gross profit | 54,000 | 28,000 | 82,000 |
| Wages (allocated) | (18,000) | (12,000) | (30,000) |
| Rent (floor area 600 : 400) | (14,400) | (9,600) | (24,000) |
| Advertising (revenue) | (4,800) | (3,200) | (8,000) |
| Administration (equally) | (5,000) | (5,000) | (10,000) |
| Profit / (loss) | 11,800 | (1,800) | 10,000 |
Departmental statement of profit or loss
Should a loss-making department close?
A department showing a loss may still be worth keeping. Many apportioned costs (rent, administration) would continue if it closed. Look at its contribution: revenue less the costs that would be saved by closing it.
Here Footwear shows a loss, but closing it saves only its cost of sales, wages and advertising. Non-financial points: customers may buy shoes and clothes together, staff morale, the use of the freed space.
Worked example
Footwear shows a loss. Rent and administration would continue if it closed. What happens to total profit if Footwear closes?
- Footwear's contribution = gross profit 28,000 - wages 12,000 - advertising 3,200 = 12,800.
- Closing it loses this contribution: total profit falls from 10,000 to (2,800).
Answer: Total profit falls by £12,800, so on financial grounds Footwear should stay open.
Check yourself
- Rent of £36,000 is apportioned by floor area. Department X has 450 m² and Department Y has 750 m². Find the rent charged to Department X.
Show answer
£13500. 36,000 x 450/1,200 = 13,500.
- Department A has gross profit of £42,000, allocated wages of £15,000, apportioned rent of £9,000 and apportioned administration of £6,500. Calculate its profit.
Show answer
£11500. 42,000 - 15,000 - 9,000 - 6,500 = 11,500.
- Advertising of £8,000 is apportioned by revenue. Department P has revenue of £150,000 and Department Q £50,000. Find Q's share.
Show answer
£2000. 8,000 x 50,000/200,000 = 2,000.
- A department shows a loss of £3,000 after being charged £10,000 of apportioned rent and administration that would continue if it closed. By how much would total profit change if it closed? (Enter a fall as a negative number.)
Show answer
£-7000. Its contribution is -3,000 + 10,000 = 7,000. Closing it loses this, so total profit falls by £7,000.
- Which is the most suitable basis for apportioning heating costs between departments?
- Floor area or volume
- Revenue
- Number of customers
- Cost of sales
Show answer
Floor area or volume. Heating cost depends on the space being heated.
- The wages of staff who work only in the Electrical department should be
- apportioned by floor area
- apportioned equally
- allocated to the Electrical department
- shown only in the total column
Show answer
allocated to the Electrical department. A cost that belongs wholly to one department is allocated to it.
Sources
Last updated 8 November 2026. Spotted a mistake? Tell us.