Improvement 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 (0.5%) . . . . . . . $ 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 half-page memorandum to your store managers explaining why home office expense is in the new performance report.