High Street Clothes is a retailer that sells to professional women. The firm leases space for stores in upscale shopping districts, and the organizational stmcture consists of regions, districts, and stores. Each region consists of two or more districts; each district consists of three or more stores. Each store, district, and region has been established as a profit center. At all levels, the company uses a responsibility-accounting system focusing on information and knowledge rather than blame and control. Each year, managers, in consultation with their supervisors, establish financial and nonfinancial goals, and these goals are integrated into the budget. Actual performance is measured each month. The South Fiegion consists of the Coastal District and the Inland District. The Coastal District includes the Excelsior, Windsor, and Sovereign stores. The Coastal District's performance has not been up to expectations in the past. For the month of May, the district manager has set performance goals with the managers of the Excelsior and Windsor stores, who will receive bonuses if certain performance measures are exceeded. The manager of the Sovereign store decided not to participate in the bonus scheme. Since the district manager is unsure what type of bonus will encourage better performance, the Excelsior manager will receive a bonus based on sales in excess of budgeted sales of $5?G,t]t], while the Windsor manager will receive a bonus based on net income in excess of budgeted net income. The company's net income goal for each store is 12 percent of sales. The budgeted sales revenue for the Windsor store is $53,. Other pertinent data for May are as follows: I Coastal District sales revenue was $1,5,{i, and its cost of goods sold amounted to $633,?50. I The Coastal District spent $?5,t] on advertising. General and administrative expenses for the Coastal District amounted to $180,0t}. At the Excelsior store, sales were 4D percent of Coastal District sales, while sales at the Windsor store were 35 percent of district sales. The cost of goods sold in both Excelsior and Windsor was 42 percent of sales. I Variable selling expenses {sales commissions) were 6 percent of sales for all stores, districts, and regions. I Variable administrative expenses were 2.5 percent of sales for all stores, districts, and regions. I Maintenance cost includes janitorial and repair services and is a direct cost for each store. The store manager has complete control over this outlay. Maintenance costs were incurred as follows: Excelsior, $?,5{it}; Windsor, SEED; and Sovereign, $4,5Dt}. I Advertising is considered a direct cost for each store and is completely under the control of the store manager. The Excelsior store spent two-thirds of the Coastal District total outlay for advertising, which was 1!] times the amount spent in Windsor on advertising. Coastal District rental expense amounted to $150,. The rental expenses at the Excelsior store were 4D percent of the Coastal District's total, while the Windsor store incurred 30 percent of the district total. District expenses were allocated to the stores based on sales. South Ftegion general and administrative expenses of $1 were allocated to the Coastal District. These expenses were, in turn, allocated equally to the district's three stores
