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170 14 32 Wholesale Co (WC) Wholesale Co (WC) runs a large number of wholesale stores and is increasing the number of these stores all

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170 14 32 Wholesale Co (WC) Wholesale Co (WC) runs a large number of wholesale stores and is increasing the number of these stores all the time. It measures the performance of each store on the basis of a target return on investment (ROI) of 15%. Store managers get a bonus of 10% of their salary if their store's annual ROI exceeds the target each year. Once a store is built there is very little further capital expenditure until a full four years have passed. WC has a store store E) in the east of the country. Store E has historic financial data as follows over the past four years Notes 20X5 20X6 20X7 20x8 Sales ($'000) 200 200 180 Cost of sales (5'000) (120) (130) (117) (119) Gross profit ($'000) 80 70 63 51 Distribution costs ($'000) (20) (18) (15) (14) Overheads (47) (38) (38) (29) Net profit ($'000) 13 10 8 Net assets at start of year ($'000) 100 80 60 40 Employee numbers 25 23 22 20 (1) Typically, WC's stores generate a 40% gross profit margin. (2) All of the distribution costs are variable, as each order is individually packed and sent out by courier. (3) The wholesale distribution market in which WC operates has been growing steadily. Required (a) Discuss the past financial performance of store E using ROI and any other measure you feel appropriate. Note there are a maximum of 5 marks available for calculations. (13 marks) m) Using your findings from (1) discuss whether the ROI correctly reflects store E's actual performance, reaching a conclusion about the manager's performance. (2 marks) (b) Explain how a manager in store E might have been able to manipulate the results so as to gain a bonus more frequently. (5 marks) -- wavel

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