Elena works for a medium-sized family-owned firm and was employed on a low retainer with the majority of her income based on bonuses. Elena is in charge of one of four responsibility centres and the bonuses were based on the final profit for each centre. Elena was not satisfied with this arrangement and renegotiated her contract so that bonuses are now based on gross profit.

Required

A. Why was Elena, who is accountable for a responsibility centre, not satisfied with bonuses based on final profit for the centre?

B. Why might it not be in the best interests of the owner-manager of the firm to base employee bonuses on the gross profit of the responsibility centre?

C. What would be the most effective way of determining employee bonuses that should satisfy the requirements of both employees and the owner-manager?