Memorandum to Store Managers

Home Station is a national home improvement chain with more than 100 stores throughout the country. The manager of each store receives a salary plus a bonus equal to a percent of the store’s net income for the reporting period. The following net income calculation is on the Denver store manager’s performance report for the recent monthly period.

In previous periods, the bonus had also been 0.5%, but the performance report had not included any charges for the home office expense, which is now assigned to each store as a percent of its sales.

Required:

Assume that you are the national office manager. Write a one-half page memorandum to your store managers explaining why home office expense is in the new performance report.