2. Use the data pertaining to the Snack Food Division, as shown in Exhibit TN-1, to calculate:

a. The economic profit for the division for 2000 and 2001.

b. The economic profit target for the division for 2001.

c. The division manager's bonus payout (% of salary) for 2000 and 2001. (Assume that the

slope of the payoff line for 2000 was arbitrarily set by the Berkshire management to

equal 1.0.)

Note: To do these calculations, make an advertising expenditure amortization schedule.

\fExhibit TN-1 Operating Data from Berkshire Industries\" Snack Foods Division (000) From the income statement: Net operating prot before the following items: Consumer advertising expense Goodwill amortization Net operating prot before taxes Income tax payments Net operating prot after taxes (NOPAT) From the balance sheet: Net operating assets (book): Accumulated amortization of goodwill Economic profit Economic prot performance target 1996 1997 1998 1999 2000 2001 137.051 162,401 184,898 194,321 (20,661) (23.730) (26,410) (31 ,007) (41 ,568) (39.191) 0 0 0 (15,000) (30,000) (30,000) 110.641 116,394 113.330 125.130 (41,293) (51,501) (54,131) (60,327) 69,348 64,893 59,199 64.803 593,040 630,268 580,920 568,113 0 0 0 15,000 45,000 75.000 ? ? 26.0001 ? Division manager's bonus: Target bonus 50%1 50%1 Bonus payout (% salary) Note: 1) Cumulative advertising expense through the end of 1997 is f181,410. 2) Cumulative advertising amortized through the end of the 1997 is f167,507