Section 3

Departmentalization

• ACCOUNTS 8500-8900
• PRORATION OF UNAPPLIED EXPENSES
• OTHER INCOME & DEDUCTIONS

Allocate used car lot lighting costs to the used vehicle department. In the absence of more precise methods, all other costs may be distributed on the basis of unweighted square footage within the building(s). Utility expense applicable to square footage occupied by the administrative employees and the dealer should be allocated to Unapplied Expenses. (Investigate the feasibility of having separate meters installed to determine the amount of electricity used by each operating department.)

Account 8520, Telephone

Long distance calls should be charged to the originating department. Allocate charges for service (excluding long distance) and equipment rental to operating departments on the basis of the number of instruments used by each department. Dealer and office telephone expense should be distributed to Unapplied Expenses.

Account 8540, Taxes—Excluding Real Estate & Income

Distribute each item directly to operating departments based upon the nature of the expense. Costs that are not traceable to an operating department should be distributed to Unapplied Expenses.

Account 8600, Insurance—Officers’ Life

Distribute to Unapplied Expenses.

Account 8620, Insurance—Excluding Building & Employee

Insurance costs for merchandise inventory and building contents are based upon the value of the assets insured. These expenses should be distributed to the department responsible for the merchandise and/or equipment. For example, the cost of insuring the parts inventory should be charged to the Parts Department. Items that are not traceable to an operating department should be distributed to Unapplied Expenses.

Account 8640, Office Supplies

Distribute each item, where practicable, directly to operating departments; e.g., the cost of parts invoices should be distributed to the Parts Department. Other items should be distributed to Unapplied Expenses.

Account 8660, Professional & Service Fees

Distribute to Unapplied Expenses unless the expense is traceable to an operating department.

Account 8680, Data Processing

Distribute to Unapplied Expenses unless the expense is traceable to an operating department.

Account 8700, Bad Debts

Distribute each item directly to the department responsible for the sale that resulted in the bad debt loss. If the reserve method is used, distribute the expense to the operating departments based upon prior loss experience.

Account 8720, Contributions

Distribute to Unapplied Expenses unless the expense is traceable to an operating department.

Account 8740, Interest—Excluding Vehicle & Mortgage

Distribute to Unapplied Expenses unless the expense is traceable to an operating department.

Account 8760, Depreciation—Equipment

Distribute to the operating departments as indicated by the classification and use of the equipment. Depreciation not traceable to an operating department should be distributed to Unapplied Expenses.

Account 8780, Equipment & Vehicle Maintenance—General

Distribute directly to the department to which the equipment or vehicle is assigned. Remaining costs should be distributed to Unapplied Expenses.

Account 8800, Travel & Entertainment

Distribute to operating departments based on the purpose of the trip or entertainment; otherwise, charge to Unapplied Expenses.

Account 8820, Miscellaneous Expense

Distribute directly to the operating department generating the expense. Items of a general nature should be distributed to Unapplied Expenses.

Account 8900, Dealer Salary

Because of the difficulty of distributing Dealer Salary equitably to operating departments, dealers may elect not to charge part of this expense to the operating departments, and choose instead to distribute the entire amount to Unapplied Expenses. If this expense is distributed to the operating departments, the distribution should be based upon the dealer’s estimate of the time spent on the activities of each department. Dealer salary related to estimated time spent on general dealership business should be distributed to Unapplied Expenses.

Because of the difficulty of accurately determining the share of Unapplied Expenses that should be prorated to each operating department, dealers may prefer to develop departmental operating profits without giving effect to Unapplied Expenses and Dealer Salary.

Other dealers, however, may wish to prorate Unapplied Expenses so that the sum of the operating profits for all departments will equal the total operating profit for the dealership. If a dealership elects to redistribute Unapplied Expenses, one of the following methods is recommended:

ONCE PERCENTAGES HAVE BEEN ESTABLISHED FOR PRORATING UNAPPLIED EXPENSES, THEY SHOULD REMAIN THE SAME THROUGHOUT THE YEAR, UNLESS SOME MAJOR OPERATIONAL CHANGE TAKES PLACE DURING THE YEAR.

The following suggestions are made for dealers who may wish to departmentalize those activities of the dealership that are not included in the determination of Operating Profit, but contribute to or detract from total dealership Net Profit.

Account 5200, Rental Vehicle Net Income

The balance in this control account represents the net of all rental vehicle income less expenses applicable to the rental vehicle activity and should be distributed to the department responsible for producing the income.

Account 5300, Wholesale Leased Vehicle Net Income

The balance in this control account represents the net of all wholesale leased vehicle income less expenses applicable to the leased vehicle activity and should be distributed to the department responsible for producing the income.

Account 9000, Recreation Vehicle Net Income

Distribute to the department responsible for producing the income or incurring the expense.

Account 9050, Tractor & Implement Net Income

Distribute to the department responsible for producing the income or incurring the expense.

Accounts 9100-9450, Additions/Deductions From Income

Distribute to the department responsible for producing the income or incurring the expense.

Account 9500, Dealer Bonus

If the dealer’s bonus is calculated as percentage of operating profit, it should be distributed on the basis of the operating profit of the various departments. Otherwise, the dealer’s bonus should be distributed on the same basis as the dealer’s salary.

Account 9550, Employee Bonuses

Bonuses paid to operating department employees should be allocated to the applicable operating department. Bonuses paid to employees such as the general manager or business manager should be allocated on each operating department’s share of dealership profit or on the same basis as Unapplied Expenses.