You are the manager of the maintenance department of a hotel. You are paid a basic salary, plus a bonus. The bonus consists of another $1,000 each time your expenses are under budget, plus 2% of the amount you are able to save. For the past six budget periods, the following are the results.

Note that U stands for unfavorable, or over budget, and F for favorable, or under budget.

a. Using this information, as a rational person what would you do if you were the department manager running the maintenance department over again from period one? Use a numerical example to prove your point.

b. If you were the hotel’s general manager, what would you recommend be done, if anything, to this hotel’s maintenance department’s bonus system?LO1

Transcribed Image Text:

Period Budget Actual Variance 123456 $80,000 $82,000 $2,000 U 80,000 79,000 1,000 F 78,000 74,000 4,000 F 72,000 74,000 2,000 U 72,000 73,000 1,000 U 72,500 72,000 500 F