Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 5

Evaluating Management Control Systems
Chama Car Detailing operates several stores in the Los Angeles area. The company is decentralized. At the corporate level, there are two operating managers: Deana Brown is in charge of personnel and Mike Gallegos is in charge of store operations. Deana's performance is based on the average wage of the store personnel (excluding store managers) relative to a target wage. All hiring is done at the corporate level. Mike's performance is based on store profits relative to targeted profits. Managers that meet their targets receive a bonus equal to 30 percent of their base salary.
Information on performance last year follows:

Required
a. Evaluate the performance of Deana and Mike based on the performance measures the company uses.
b. Assess the management control system used at Chama Car Detailing and provide recommendations for changes, if any are required. Be sure to discuss:
•Decision authority
•Performance measures
•Compensation