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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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