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The Book & game Company has two bookstores: Auties’s and
Merlin’s. Each store has a manager who has a great deal of
decision authority over the individual stores. Advertising, market
research, acquisition of books, legal services, and other staff
functions, however, are handled by a central office. The Book &
Game Company’s current accounting system allocates all costs
to the stores. Result for year 2005 were

Item Total Auties’s Merlin’s

Company ($) ($)
($)
Sales Revenue 700.000,- 350.000 350.000,-
Cost of Merchandise Sold 450.000,- ,- 225.000,-
(CMS) 225.000
,-
Gross Margin 250.000,- 125.000 125.000,-
,-
Operating Expenses
Salaries and wages 63.000,- 30.000,- 33.000,-
Supplies 45.000.- 22.500,- 22.500,-
Rent and utilities 60.000,- 40.000,- 20.000,-
Depreciation 15.000,- 7.000,- 8.000,-
Allocated staff costs 60.000,- 30.000,- 30.000,-
Total operating costs 243.000,- 129.500 113.500,-
,-
Operating income (loss) 7.000,- (4.500,-) 11.500,-

Each bookstore manager makes decisions that affect

salaries and wages, supplies, and depreciation. In contrast, rent
and utilities are beyond the manager’s control because the
managers did not choose the location or the size of the store.
Supplies are variable costs. Variable salaries and wages
are equal to 8 % of the CMS; the remainder of salaries and wages
is a fixed cost. Rent, utilities and depreciation also are fixed
costs. Allocated staff costs are unaffected by any events at the
bookstores but they are allocated as a proportion of sales
revenue.
a. Using the contribution approach, prepare a performance
report that distinguishes the performance of each bookstore
from that of the bookstore manager.
b. Evaluate the financial performance of each bookstore?
c. Evaluate the financial performance of each manager?