To follow its environmental vocation, Hangers Cleaners of Kansas City have set up a new business to ensure that people’s unwanted textile items and unclaimed dry-cleaned garments have a second life through their unique reuse and recycling model. Hangers Cleaners up-apparel know that for every 1kg of textiles that avoids landfill, they would prevent an average of 3-4kg of greenhouse gases from polluting the atmosphere. Not to mention that 100% of the items collected are repurposed or transformed into new materials that are not only entirely recycled but also circular in design. This means absolutely nothing is sent to the landfill. The repurposed or transformed items are then sold.
Hangers’ Cleaners up-apparel has two main product lines: repurposed apparel and transformed apparel, with a manager in charge of each product line. The managers are paid a bonus based on the net income generated by their product line. Hui (the CEO of Hangers’ Cleaners up-apparel) was going through the financial reports of the 2nd quarter of 2022 to analyze the performance of the product lines.
For ‘Repurposed apparel’, the largest product line of Hangers’ Cleaners up-apparel, Hui noted that while the sales declined from $800,000 in quarter 1 to $600,000 in quarter 2, the product line manager of ‘Repurposed apparel’ received a bonus larger than the 1st quarter. The manager of the ‘Repurposed Apparels’ division was eligible for a higher bonus due to an operating profit increase from $90,000 in the 1st quarter to $120,000 in the 2nd quarter. Hui wondered how the product line manager was entitled to a higher bonus with a decline in sales. Hui also wants to know how net income increased with a decline in sales.
Hui found the following data from the financial reports of ‘Repurposed Apparel’:
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