PowerPoint Presentation

High street clothesIPMI Executive MBA Class of March 2015Group 2-Queen Ratih: Ratih Arie Utami, Arief Sugito, Rachmat Makkasau, Prasetyo Sumantri, Denny SitumorangLecturer: Mr. Widiyarto S. SumitroBackground

High Street Clothes is a retailer that sells to professional women, where the organization structure consists of regions, districts, and stores. It is located mostly in upscale shopping districts.The South Region consists of the Coastal District and Inland District.Background

The Coastal District includes the Excelsior, Windsor and Sovereign stores. The Coastal Districts performance has not been up to expectations in the past.Problem identification

With High Street Clothes more of a responsibility rather than blame and control type of company, its managers , in consultation with its supervisors, annually establish financial and non-financial goals integrated into their budget. The Coastal District manager has set performance goals with the managers of Excelsior and Windsor stores, where the Sovereign store manager decided not to take part in the bonus scheme.

Problem identification

The companys net income goal for each store is 12 percent of sales, where Excelsior managers bonus is released on sales more than budgeted sales of $570,000, and Windsor manager gets bonus when net income is more than budgeted.Problem identification

Mays data includes:Coastal District (CD) sales revenue was $ 1.5 million, its COGS was $ 633,000.Advertising was $ 75,000.G&A expenses were $180,000.Excelsior and Windsor sales were 40% and 35% of CD sales, respectively. Both stores COGS were 40% of sales.Variable selling expenses (sales commissions) were set at 6% for all stores, districts, and regions.Variable administrative expenses were at 2.5% of sales for all.Maintenance costs (incl. janitor and repairs) is a direct cost under the control of the store manager, were: Excelsior, $ 7,500; Windsor, $ 600; and Sovereign $4,500.

Problem identification

Mays data includes:Advertising is considered a direct cost under the control of the store manager. Excelsior spent 2/3 of CD advertising budgeted expense, 10 times the advertising amount spent by Windsor.CD rental expense was $ 150,000, with Excelsior spending 40% and Windsor 30% of it.District expenses were allocated to the stores based on sales.South Region G&A expenses of $165,000 were allocated to CD, and these expenses were allocated further to each of its three stores equally.

Problem identification

Prepare the May segmented income statement for the Coastal District and for the Excelsior and Windsor stores.Compute the Sovereign stores net income for May.Discuss the impact of the responsibility-accounting system and bonus structure on the manager's behavior and the effect of their behavior on the financial results for the Excelsior store and the Windsor store.The assistant controller for the South Region, Jack Williams, has been a close friend of the Excelsior store manager for over 20 years. When Williams saw the segmented income statement [as prepared in requirement (1)], he realized that the Excelsior store manager had really gone overboard on advertising expenditures. To make his friend look better to the regional management, he reclassified $25,000 of the advertising expenditures as miscellaneous expenses, and buried them in rent and other costs. Comment on the ethical issues in the assistant controller's actions.

Problem analysis 1

Segmented income statement for May:

Problem analysis 2

Sovereign store net income for May:

$ 12,375Problem analysis 3

Problem analysis 3

Problem analysis 4

Conclusion and recommendations

Thank you,,, Danke, Terima kasih.