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CASE 2 Bert the Baker problem with my annual profit target of $150,000, which is 8.5 percent of sales. My complaint has nothing to do with the 8.5 percent profit target being more than the 5 percent for the overall store. A bak- ery has a better chance of high profits than the other departments. Let me explain. First, I have little control over my labour costs. The store manager schedules employees who may or may not be necessary for the bakery. Second, the bakery operating statement includes charges that have nothing to do with the bakery. For example, the store manager's total salary is charged to the bakery because it is always profitable. Third, I do not get the chance to approve any of the costs charged to the bakery department. Fourth, I do not receive a copy of the bakery operating statement. Fifth, and most important, there is no opportunity to plan the operating costs in conjunction with the store manager and the other department managers. This would allow costs to be managed more carefully. You are a management accountant with the divi- sional accounting office of a large grocery retailer, Foodco. Your supervisor has asked you to go to the Richville store to resolve an issue the store manager has with the bakery manager about the fairness of the accounting information used with a bonus system. In order to remain viable and to grow, Foodco introduced sales and profit targets for retail stores. For an "A-type" store like the Richville store, the weekly sales target is $12 per square foot, or for this 20,000 square-foot store, $12.5 million a year. Operating profits are to be 5 percent of target sales, or $625,000 a year. Typically, store managers delegate responsibil- ity for sales and operating profits to department managers, i.e., produce, dry goods, bakery, and meats. With this system, the store managers and their department managers receive bonuses equal to about one third of their salarics if the targets are achieved. Upon arriving at the Richvillle store, you meet Stella, the store manager, and then Bert, the baker. Bert reiterates his complaint that the bonus system is based on unfair accounting. I am told that $1.75 million a year or about $33,655 a week. I have no problem with sales. I can provide customers with what they want at competitive prices. However, I have a my sales target is Required are to use the case approach to identify and analyze the issues and make recommendations for their resolution. you 41

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