make recommendations for the improvement of inzone plc 39 s store report briefly jus 597820

Recommendations for improvements to a performance report and a review of the management control system

Your firm has been consulted by the managing director of Inzone plc, which owns a chain of retail stores. Each store has departinents selling furniture, tableware and kitchenware. Departmental managers are responsible to a store manager, who is in turn responsible to head office (HO).

All goods for sale are ordered centrally and stores, sell at prices fixed by HO. Store managers (aided by departmental managers) order stocks from HO and stores are charged interest based on

– month-end stock levels. HO appoints all permanent -staff and sets all pay levels. Store managers can engage or dismiss temporary workers, and are responsible for store running expenses.

The introduction to Inzone plc’s management accounting manual states:

`Budgeting starts three months before the budget year, with product sales projections which are developed by HO buyers in consultation with each store’s departmental managers. Expense budgets, adjusted for expected inflation, are then prepared by HO for each store. Inzone plc’s accounting year is divided into 13 four-weekly control periods, and the budgeted sales and expenses are assigned to periods with due regard to seasonal factors. The budgets are completed one month before the year begins on 1st January.

`All HO expenses are recharged to stores in order to give the clearest indication of the “bottom line” profit of each store. These HO costs are mainly buying expenses, which are recharged to stores according to their square footage.

`Store reports comparing actual results with budgets are on the desks of HO and store management one week after the end of each control period. Significant variations in performance are then investigated, and appropriate action taken.’

Ms Lewis is manager of an Inzone plc store. She is eligible for a bonus equal to 5% of the amount by which her store’s ‘bottom-line’ profit exceeds the year’s budget. However, Ms Lewis sees no chance of a bonus this year, because major roadworks near the store are disrupting trade. Her store report for the four weeks ending 21 June is as follows:

Actual Budget

(£)

Requirements:

(a) Make recommendations for the improvement of Inzone plc’s store report, briefly justifying each recommendation.

(b) Prepare a report for the managing director of Inzone plc reviewing the company’s responsibility delegation, identifying the major strengths and weaknesses of Inzone plc’s management control system, and recommending any changes you consider appropriate.