Question
AU Enterprises has a bonus plan based on a minimum required rate of return of 20%. A manager whose ROI exceeds 20% will receive a
AU Enterprises has a bonus plan based on a minimum required rate of return of 20%. A manager whose ROI exceeds 20% will receive a bonus equal to the (percentage difference between the achieved ROI and 20%) times the operating income of the division. If the ROI is less than 20%, the manager's salary will be reduced by the (percentage difference between the achieved ROI and 20%) times the operating income of the division. You have been asked to determine the bonus or the reduction for a division whose Operating Income is equal to the first three digits of your AUID and whose Average Operating Assets equal the last four digits of your AUID. Note: If the last four digits of your AUID are less than 1,000 (e.g. 400, then add 1,000, so the average assets are $1,400) Required: In the space below answer the following: A. What is the dollar amount of the bonus or the salary reduction for the division manager? In determining the amount, round your calculation of the achieved ROI to three decimal places (e.g., 24.2%) and then round off the dollar amount to the nearest whole dollar. (e.g. $502). If the result is a negative amount, that is, a salary reduction, show as a negative amount (e.g., -$174). Show all work, including the ROI, the Bonus or Salary Reduction % and the dollar amount of the bonus or salary reduction. B. Is the AU Enterprise bonus plan the same as using Residual Income? Briefly explain why or why not.
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