Advanced: Design and discussion of key performance indicators for DIY outlets and regional companies Duit pic has recently acquired Ucando Ltd which is a regional builders' merchants/DIY company with three outlets all within a radius of 40 miles. Duit pic is building up its national coverage of outlets. Duit pic has set up regional companies each with its own board of directors responsible to the main board situated in London.

It is expected that eventually each regional company will have between 1 0 and 20 outlets under its control. A regional company will take over control of the three Ucando Ltd outlets. Each outlet will have its own manager, and new ones have just been appointed to the three Ucando Ltd outlets.

The outlet's managers will be allowed to hire and fire whatever staff they need and the introduction of a head count budget is being considered by Head Office. Each outlet manager is responsible for his own sales policy, pricing, store layout, advertising, the general running of the outlet and the purchasmg of goods for resale, subject to the recommendations below. Duit pic's policy is that all outlet managers have to apply to the regional board for all items of capital expenditure greater than £500, while the regional board can sanction up to £100000 per capital expenditure project.

The outlets will vary in size of operations. and this will determine the number of trade sales representatives employed per outlet.

There will be a mrn~mum of one trade sales representative per outlet under the direction of the outlet manager. Each manager and representative will be entitled to a company car.

Outlet sales are made to both retail and trade on either cash or credit terms. Debtor and cash control is the reponsibility of regional office. Cash received is banked locally. and immediately credited to the Head Office account. Credit sales invoices are raised by the outlet with a copy sent to regional office. Within each outlet it is possible to identify the sales origin, e.g. timber yard, saw mill, building supplies, kitchen furn~ure, etc.

Timber lor resale is supplied to an outlet on request from stocks held at regional office or direct from the ports where Duit (Timber Importers) Ltd tras further stocks. Duit Kitchens Ltd provides kitchen furniture that the outlets sell. Duit pic also has a small factory making windows, doors and frames which are sold through the outlets. When purchasing other products for resale, the outlet is requested to use suppliers with which Head Office has negotiated discount buying arrangements. All invoices for outlet purchases and overheads are passed by the respective outlet manager before being paid by regional office. In existing Duit outlets a perpetual inventory system is used. with a complete physical check once a year.

Information concerning last year's actual results for one of Ucando Ltd's outlets situated at Birport is given below:

Notes:
(1) Sales can be identified by till code-cash/credit, trade/retail, timber, kitchen furniture, frames, heavy building suppplies, light building supplies, sawmill etc.
(2) Workforce distributed as follows: timber yard (3), sawmill (1), sales (7), general duties (1), administration (3).
(3) Paid to sales representatives (2), assistant manager, manager.
(4) Equipment used in sales area, sawmill, yard.
Requirements:

(a) Describe a cost centre, a profit centre and ::tn investment centre and discuss the problems of and benefits from using them for management accounting purposes. (7 marks)

(b) Suggest key performance indicators which can be used either individually or jointly by each member of the management team for the regional outlet network, i.e. those in the regional office, the outlets and their departments, in a responsibility reporting system for their evaluation purposes.
(6 marks)

(c) Justify the key performance indicators that you have suggested in

(b) incorporating, where appropriate, referrence to whether the individuals or entities are being treated as cost, profit or investment centres. (6 marks)

(d) Design a pro forma monthly report without figures which can be used by both the outlet manager for his management and control needs and by the regional board to evaluate the outlet. The report can include two or more sections if you wish. Provide a brief explanation for the format chosen.
(6 marks)
Note: The manufacturing companies and the importing company report direct to the main board.

Transcribed Image Text:

Birport DIY outlet Trading and profit and loss account for year to 31 March 1985 () () Sales (1) 1543 000 Less Cost of sales 1095 530 Prime gross margin (29%) 447 470 Less: Wages (2) 87 400 Salaries (3) 45 000 Depreciation: equipment (4) 9100 buildings 3500 vehicles (3 cars) 6500 Vehicle running expenses 6170 Leasing of delivery lorry 6510 Lorry running expenses 3100 Energy costs 9350 Telephone/stationery 9180 Travel and entertaining 3490 Commission on sales 7770 Bad debts written off 9440 Advertising 25 160 Repairs 6000 Rates, insurance 13420 Sundry expenses 10580 Delivery expenses 7400 269 070 Net profit (11.56%) 178 400 Position at 31 March 1985 Debtors Stock () 100 900 512000