Improvement Station is a national home improvement chain with more than 100 stor
ID: 2475462 • Letter: I
Question
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.
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.
Explanation / Answer
To ,
The Store Managers,
Ref : Inclusion of Home Office Expenses in Performane Report :
Dears,
This is to bring some clarity on the new expense item you must have noticed in the performance report related to your store. It is the allocation of Home Office Expenses to the stores in proportion to sales.
This is a new expense item and might have generated some confusion as none of the stores are actually responsible for the expense.
To clarify the logic behind the allocation , please understand that each Home Office providing service to multiple Stores under it have some costs which are incurred for smmoth functioning of the stores. These common costs are incurred for planning , budgeting , performance monitoring, Central HR Functions, Marketing and Sales Strategic functions, Advertisement , Central Purchase functions to name a few.
As a profit centre the home office needs to earn revenue and also needs to pass off charges that are incurred on behalf of other stores.
Therefore it hase been decided to henceforth allocate Home Office Charges to Stores in proportion to sales , so that the True performance of each division and stores can be expressed fairly and objectively.
Hope the stand is now clear and the logic is understandable.
If you have any doubt please ask for the clarification , I shall be happy to answer your query.
Best Regards
XYZ
NAtional Sales MAnager