Randolph Corporation utilizes a nationwide sales organization for marketing its line of consumer products. Year-end bonuses are awarded to managers based on annual profit improvement. The manager of the Denver Sales Region has just received the following profit report for the month of November.

Selling prices are set nationally by the corporate office in New York. Individual sales managers are allowed to establish promotional activities (coupons, rebates, etc.) within their regions; however, major advertising campaigns are authorized only at corporate headquarters. Data processing costs are allocated to each sales region based on its usage relative to other sales regions. Other corporate costs are allocated to sales regions based on sales percentages.

(a) Consider yourself as manager of the Denver sales region. How would you react to being evaluated by this profit report?

(b) What suggestions for improvement in this performance evaluation system can you make?

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Randolph Corporation Denver Sales Region Profit Report for November (in 000's) Same Month, Current Month Previous Month Sales revenues.... $16,000 $17,150 Previous Year $15,200 Cost of goods sold.. 11,200 12,005 9.880 Gross margin........... 4,800 5,145 5,320 Less other costs: Salaries and commissions....... 200 210 200 Travel and entertainment....... 15 20 16 Promotions. 45 60 44 Data processing.. 210 245 210 Advertising. 600 600 580 Allocated corporate overhead 530 585 510 Net Income... As % of sales............ $ 3,200 $ 3,425 $ 3,760 20% 20% 25%