When a large Omaha Department store moved to a new location, Linda Butler was hi
ID: 2519556 • Letter: W
Question
When a large Omaha Department store moved to a new location, Linda Butler was hired as the new shoe department manager. Harold Knox, who retired, had been the manager at the old location. Linda’s boss, Samantha Sanders, is concerned about the poor performance since Linda became shoe department manager. The new store location is much larger than the old store location - not all of the space is currently needed. The extra space is divided up among the various departments including the shoe department. Utilities and depreciation for the entire store are allocated based on the number of square feet in each department even though individual departments have no control or influence over these amounts.
New Location
Old Location
Sales
800,000
400,000
Cost of Goods Sold
160,000
100,000
Gross Profit
640,000
300,000
Department Salaries
80,000
72,000
Other Department Costs
12,000
8,000
Allocated Utilities and Depreciation
388,000
20,000
Net Income
160,000
200,000
Samantha Sanders is the Manager of the entire store. In an Interview with Linda she states: "You are not doing nearly as good as your predecessor, Harold Knox. He had a 50% margin - you only have a 20% margin. He had $200,000 of income - you only have $160,000. You are not going to have much of a future here if you do not start to perform better."
Linda Butler is not the type of manager to back down from a fight. She said to the Store Manager: "Your figures are skewed by unreasonable data. I have control over my inventory costs, my department salaries and my other departmental costs. In all of these areas by any reasonable measure, I am far surpassing the performance of my predecessor, Harold Knox. You should be paying me a bonus - you should not be threatening me!"
In your post, answer the question: Who is Right?? Your post should justify your answer with supporting concepts and a report patterned after those in chapter 6.
New Location
Old Location
Sales
800,000
400,000
Cost of Goods Sold
160,000
100,000
Gross Profit
640,000
300,000
Department Salaries
80,000
72,000
Other Department Costs
12,000
8,000
Allocated Utilities and Depreciation
388,000
20,000
Net Income
160,000
200,000
Explanation / Answer
Linda Butler is right and Samantha Sanders is wrong which can be evidenced by Net Income/Margin without allocation of allocated utilities and depreciation over which new manager of shoe department, Linda Butler, is really not having control. In short, allocated Utilities and Depreciation expenses are uncontrollable for Linda Butler. The calulation of Net Income/Margin before allocation of allocated utilities and depreciation is given below for your understanding. New Location Old Location Sales 800000 400000 Cost of goods sold 160000 100000 Gross profit 640000 300000 Gross margin ratio 80 75 Departmental Salaries 80000 72000 Other Departmental Costs 12000 8000 Net Income 548000 220000 Net Margin ratio 68.5 55 By above calculations, it can be proved that new manager, Linda Butler is doing far better than its predecessor and really deserve bonus instead of threats from Samantha Sanders, a manager of the entire store. We appreciate the rating of ours answers. It really encourages us to improve or maintain quality of our answers. Thank You.
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