Florida Cruises operates a fleet of glass bottom boats that give tours of the coral reefs off Key West, Florida. Since its inception, the firm has fetched its owner a healthy return on investment. One reason the company does so well is that the owner believes in keeping tight control over operations. Every December, the owner and the manager evaluate the prior year’s operations and carefully plan next year’s operations. At the end of these discussions, they project income for the coming year. The manager and other operating staff receive a large bonus if actual income exceeds budgeted income.

This incentive scheme appeared to work well in the past. The manager and the staff worked hard to reap bonuses at the end of each year. However, the performance for the most recent year did not quite measure up to expectations, as the following data indicate:

Naturally, the manager and staff did not receive a bonus. However, the manager was upset with this turn of events. “We all worked extra hard this year. It was a tough year.
The fuel prices more than doubled. We lost three months’ worth of revenues because of hurricanes—people were fleeing the Florida Keys. How can we expect tourists to come in and see coral reefs at a time like that? We should not be punished for what is not under our control,” he complained.
To make his point, the manager provided the following additional information to the owner:
• The loss in revenues is mostly attributable to two devastating hurricanes. While hurricanes are common in Key West, the past year set a record in terms of the number and severity of hurricanes that passed over the Keys.
• The increase in direct material costs is attributable to a sharp increase in fuel prices (the price run-up was not anticipated at the time of budgeting).
• About $140,000 of fixed operations overhead was attributable to the expenses that were incurred to protect the boats from the hurricanes and to fix some unavoidable damage to the pier and sheds.
The manager claimed that if the budget were revised to account for these factors, the actual performance would appear much more reasonable given the circumstances.

Required:
Should a bonus be awarded to the manager and operatingstaff?

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Florida Cruises Income Statement for Year Ending December 31 BudgetedActual S2.800,000 S2.050.000 Revenues Less Variable costs Direct materials (fuel, supplies) Direct labor Variable overhead Fixed costs Operating overhead (boats, pier, salaries) Marketing and administration Profit before taxes 480,000520,000 1,100,000 950,000 175,000 148,000 20,000 420,000 380.000325,000 S345,000 (S313,000)