Operating Statement
Definition
An Operating Statement is a financial report designed to detail and evaluate the financial performance of a specific division within an organization over a fixed budget period. This report is vital for the management team as it illustrates how well the particular area of the operation has met its targets. It includes a breakdown of production levels, costs incurred, and revenue generated, and these figures are compared against both budgeted amounts and performance in previous periods.
Examples
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Manufacturing Unit Operating Statement:
- Production Levels: 5,000 units produced
- Costs Incurred: $150,000 in raw materials, $50,000 in labor
- Revenue Generated: $300,000
- Comparison: Budgeted production was 4,800 units with a budgeted cost of $175,000 and forecasted revenue of $320,000. Previous period’s figures include 4,500 units produced at a cost of $170,000 with revenue of $295,000.
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Marketing Department Operating Statement:
- Campaigns Run: 3 major campaigns
- Costs Incurred: $80,000
- Revenue Generated: $250,000 in sales directly attributed to campaigns
- Comparison: Budget was for 4 campaigns with a cost of $100,000 and expected revenue of $300,000. Last period’s performance included 2 campaigns at $60,000 cost generating $200,000 revenue.
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Retail Store Operating Statement:
- Sales: 10,000 items sold
- Operating Costs: $500,000
- Revenue Generated: $1,200,000
- Comparison: Target sales were 9,500 items with a budget cost of $520,000 and expected revenue of $1,150,000. Comparable period last year showed 9,000 items sold at an operating cost of $480,000 with revenue of $1,100,000.
Frequently Asked Questions (FAQs)
What is the purpose of an operating statement?
The primary purpose of an operating statement is to provide a detailed financial and quantitative analysis of the performance of a specific area within an organization, helping management make informed decisions.
How is an operating statement different from a profit and loss statement?
While a profit and loss statement provides an overview of the company’s financial performance as a whole, an operating statement focuses on a specific area of operations, providing more detailed information about performance against budgeted targets.
What key elements are included in an operating statement?
An operating statement typically includes production levels, costs incurred, revenue generated, and comparisons with budgeted amounts and previous periods’ performance.
How often are operating statements produced?
Operating statements can be produced monthly, quarterly, or annually depending on the needs of the organization and the specific area being monitored.
Who uses operating statements?
Operating statements are used by the management team within an organization to monitor performance, control costs, and make strategic decisions.
Related Terms
- Budget Variance: The difference between actual performance results and budgeted projections.
- Profit and Loss Statement: A financial report that summarizes the revenues, costs, and expenses incurred during a specific period.
- Cost Accounting: The process of tracking, recording, and analyzing costs associated with the products or activities of an organization.
- Management Accounting: The process of preparing management reports and accounts that provide accurate and timely financial and statistical information required by managers to make day-to-day and short-term decisions.
Online Resources
- Investopedia - Financial Statements
- AccountingTools - Operating Statement
- Corporate Finance Institute - Operating Income
Suggested Books for Further Studies
- “Financial and Managerial Accounting” by Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso
- “Cost Accounting: A Managerial Emphasis” by Charles T. Horngren, Srikant M. Datar, and Madhav Rajan
- “Managerial Accounting” by Ray H. Garrison, Eric Noreen, and Peter Brewer
Accounting Basics: “Operating Statement” Fundamentals Quiz
Thank you for exploring the in-depth aspects of operating statements. Test your knowledge with our comprehensive quiz to ensure you have a solid understanding of how these vital financial reports operate within a business context!
