You are the management accountant at the head office of a company which owns retail shoe shops throughout the country. The shops are grouped into areas, each having an area manager. Goods for sale are bought through a central purchasing scheme administered by head office. Shop managers have discretion to vary sales prices subject to the approval of the area manager. It is the responsibility of shop managers to record on a wastage sheet any shoes which are discarded because of damage in the shop. Shop managers have total control over the number of staff they employ and the mix of permanent and casual staff, subject to interview in the presence of the area manager. Shop managers also arrange for cleaning of the premises and are responsible for heat and light and other overhead costs.

The head office accounting system has produced the following information with regard to the Southern area

Further information

(a) The Southern area has an overall operating profit target of 20% of sales. The area office has a target allowance of 2% of sales to cover its expenses other than those recharged to shops.

(b) Details of area office expenses are:

                                                            £

Area manager’s salary  ............... 18,000

Area manager’s bonus .................  3,000

Other office expenses ...................  2,400

                                                            23,400

Area office recharges .....................  (9,000)

                                                              14,400

(c) It is the policy of the company to disclose sufficient information to motivate and inform the appropriate level of management or staff, but to avoid reporting excessive detail, particularly where such detail would unnecessarily disclose information about wages or salaries of individual employees.

Required

Prepare three separate reports including comments on and interpretation of the quantitative performance data as follows:

1. To the area manager on the overall performance of the area and the relative performance of each shop within the area.

2. To the manager of shop A on the performance of that shop relative to the rest of the area and to the area target.

3. To the employees of shop B showing them how their shop performed relative to the rest of the area.

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Shop A Shop B Shop C Area target % Turnover 450,000 480,000 420,000 100 Costs: 355,000 5,000 360,000 356,000 Cost of goods sold Wastage 278,000 2,000 280,000 69 4,000 360,000 Salaries and wages: Branch manager Bonus for manager 15,000 16,000 16,000 1,000 1,500 1,500 Permanent assistants 9,000 7,000 7,000 Bonus for assistants 450 480 420 5,000 29,920 Casual workers 3,000 28,450 4,000 28,980 6 Heat, light, cleaning and other overheads 7,600 8,500 8,200 2