Advanced: Recommendations for improvements to a performance report and a review of the management control system Your firm has been consulted by the managmg director of lnzone pic, which owns a chain of retail stores. Each store has departments selling furniture, tableware and kitchenware.

Departmental managers are responsible to a store manager. who is in turn responsible to head office (HO).

All goods for sale are ordered centrally and stores sell at prices fixed by HO. Store managers (aided by departmental managers)

order stocks from HO and stores are charged interest based on month-end stock levels. HO appoints all permanent staff and sets all pay levels. Store managers can engage or dismiss temporary workers, and are responsible for store running expenses.

The introduction to lnzone pic's management accounting manual states:

'Budgeting starts three months before the budget year. with product sales projections which are developed by HO buyers in consultation with each store's departmental managers. Expense budgets, adjusted for expected Inflation, are then prepared by HO for each store.lnzone pic's accounting year is divided mto 13 four-weekly control periods, and the budgeted sales and expenses are assigned to periods with due regard to seasonal factors. The budgets are completed one month before the year begins on 1st January.

'All HO expenses are recharged to stores in order to give the clearest indication of the 'bottom line' profit of each store. These HO costs are mainly buying expenses, which are recharged to stores according to their square footage.

'Store reports comparing actual results with budgets are on the desks of HO and store management one week after the end of each control period. Significant variations in performance are then investigated, and appropriate action taken.'

Ms Lewis is manager of an lnzone pic store. She is eligible for a bonus equal to 5% of the amount by which her store's 'bottom-line'

profit exceeds the year's budget. However, Ms Lewis sees no chance of a bonus this year, because major roadworks near the store are disrupting trade. Her store report for the four weeks ending 21 June 1986 is as follows:

Requirements:

(a) Make recommendations for the improvement of lnzone pic's store report, briefly justifying each recommendation.
(11 marks)

(b) Prepare a report for the managing director of lnzone pic reviewing the company·s responsibility delegation, rdenlifymg the major strengths and weaknesses of lnzone pic's management control system, and recommending any changes you consider appropriate.

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Actutal Budget () () 98 850 110000 Sales Costs: Cost of goods (including stock losses) 63100 70200 Wages and salaries 5300 5500 Rent 11000 11000 Depreciation of store fittings 500 500 Distribution costs 4220 4500 Other store running expenses 1970 2000 Interest charge on stocks 3410 3500 Store's share of HO costs 2050 2000 Store profit 7300 10800 98 850 110000 Stocks held at end of period 341000 350000 Store fittings at written down value 58000 58000