Memorandum to Store Managers

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.
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