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.