Budgets and Incentives You are working as a supervisor in a manufacturing department that has substantial amounts of men and equipment. You are paid a “base” salary that is actually low for this type of work. The firm has a very liberal bonus plan, which pays you another $1,000 each time you “make the budget” and 2 percent of the amount you are able to save.

Your past experiences have been as follows:

PERIOD 1 Ze 3 4 5 6 Budget $40,000 $40,000 $39,000 $36,000 $36,000 $36,250 Actual 41,000 39,500 37,000 37,000 36,500 36,000 Variance $1,000U $ SOOF $ 2,000F $1,000U $ 500U §$ 250F required 7. What would you do as a “rational man” if you were starting the job all over again from period 1 with the above information?
2. What would you recommend, if anything, be done to the system if you are now promoted to a higher job in management and required to handle the “bonus system” in this department?

and Sid. Each had charge of a group of exercise and apparatus rooms similar in all regards. She offered three methods of weekly payment to the men:
Method X. A base rate of $6 per hour and 30 percent of all reductions in expenses below a ‘‘norm’’ of $600 per week.
Method Y. A flat wage of $7 per hour.
Method Z. No base rate, but a bonus of $300 for meeting the ‘‘norm,” plus 10 percent of all reductions in expenses below the norm.
The men chose their method of compensation before starting employment.
Assume a 40-hour week. The record for the past six weeks for the three areas follows (all data are in dollars):

WEEKS 1 2 3 4 5 6 Dave:
Utilities 250 250 250 250 250 250 Supplies 180 20 20 260 100 20 Repairs & misc. 305 250 220 265 260 200 Total 735 520 490 775 610 470 Nick:
Utilities 250 250 250 250 250 250 Supplies 100 100 100 100 100 100 Repairs & misc. 250 200 265 220 260 305 Total 600 550 615 570 610 655 Sid:
Utilities 250 250 250 250 250 250 Supplies 100 100 100 100 100 100 Repairs & misc. 250 250 250 250 250 250 Total 600 600 600 600 600 600 Which payment methods were most likely chosen by Dave, Nick, and Sid?
Base your answer on an analysis of cost behavior patterns. Assume that each man picked a different plan. (Giving your final answer is not enough; briefly explain your choices.)

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