Home Station is a national home improvement chain with more than 100 stores throughout the country. The manager of each store receives a salary plus a bonus equal to a percent of the store’s net income for the reporting period. The following net income calculation is on the Denver store manager’s performance report for the recent monthly period.
|
Sales |
$2,500,000 |
|
Cost of goods sold |
800,000 |
|
Wages expense |
500,000 |
|
Utilities expense |
200,000 |
|
Home office expense |
75,000 |
|
Net income |
$ 925,000 |
|
Manager’s bonus (05%) |
$ 4,625 |
In previous periods, the bonus had also been 0.5%, but the performance report had not included any charges for the home office expense, which is now assigned to each store as a percent of its sales.
Required
Assume that you are the national office manager. Write a one half page memorandum to your store managers explaining why home office expense is in the new performance report.