My division had another great year last year. We all worked hard, and the results were there. But again we got no reward for our hard work. It's very frustrating.
- Division Manager, General Products Division,
Industrial Electronics, Inc.
Industrial Electronics, Inc. (IE) produced a wide range of electronic equipment, including signal sources, test equipment, communications systems, and various piece parts and subassemblies such as motors, generators, and probes. Total annual sales were in excess of $8 billion.
Questions
1. Evaluate (i.e., discuss the pros and cons of) the current bonus system.
2. Calculate the bonus award (percent of base salary) that would be given to the manager of each of the following four divisions under the proposed new bonus system. These divisions are representative of the range of divisions within IE.
3. Evaluate the proposed bonus system.
4. Propose a bonus system that you believe is optimal for IE. Why do you think your proposed system is optimal? Explain.

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(s000) Budgeted Budgeted Actual Actual Division Operating Profit Operating Assets Operating Profit Operating Assets $1,000 1,000 50 (700) 600 58,000 8,000 1,000 4,000 2,000 51.150 ,500 300 (300) 100 $7,000 7,000 800 4,200 1,800