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.)

d. Assume the base salary of the manager of the Snack Foods Division was 120,000 in both

2000 and 2001. How much cash would the manager receive from his bonus payouts in 2000

and 2001?

Prepare the calculations using an advertising expenditure amortization schedule.

Exhibit TN-1 Operating Data from Berkshire Industries' Snack Foods Division (2000) 1996 1997 1998 1999 2000 2001 From the income statement: Net operating profit before the following 137,051 162,401 184,898 194,321 items: Consumer advertising expense (20,661) (23,730) (26,410) (31,007) (41,568) (39,191) Goodwill amortization 0 0 0 (15,000) (30,000) (30,000) Net operating profit before taxes 110,641 116,394 113,330 125,130 Income tax payments (41,293) (51,501) (54,131) (60,327) Net operating profit after taxes (NOPAT) 69,348 64,893 59, 199 64,803 From the balance sheet: Net operating assets (book): 593,040 630,268 580,920 568,113 Accumulated amortization of goodwill 0 0 0 15,000 45,000 75,000 Economic profit ? Economic profit performance target 28,0001Division manager's bonus: Target bonus 50%1 50%1 Bonus payout (% salary) 2 2 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